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What Does the Future Hold for Islamic Finance?



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After remaining resilient in 2020, the Islamic finance segment is performing strongly this year, as an improved economic environment, a rise in the number of large projects and an increased focus on environmental, social and governance (ESG) factors combine to drive demand.

Despite the twin challenges of Covid-19 and the fall in global oil prices, the segment’s assets grew by 10.6% last year, according to global ratings agency S&P.

Although this was down on the 17.3% growth rate recorded in 2019, it was nevertheless a strong performance in light of the global recession, with many suggesting that the segment’s positive growth was a sign of its strong future potential.

Building on this, S&P forecast that the global Islamic finance industry will grow by 10-12% annually over the course of 2021 and 2022.

This positive projection is largely built on an expected economic recovery in key Islamic markets in the Gulf and South-east Asia, driven by the rollout of large infrastructure projects in countries like Saudi Arabia and Qatar, and an increase in sukuk (Islamic bond) issuances, which S&P expects will reach $140-155bn this year, up from $139.8bn in 2020.

Indeed, some individual lenders have experienced far more dramatic growth, with the Dubai-based Emirates Islamic recording a 358% year-on-year growth in net profits over the first nine months of the year.

Islamic finance increases market share
Perhaps unsurprisingly, the continued growth of Islamic finance is translating into increased prominence within global finance markets, particularly in Muslim-majority countries in the Middle East and South-east Asia.

For example, in the GCC – the world’s largest Islamic finance market, with around 45% of the global share – sharia-compliant banking assets as a proportion of total banking assets have grown significantly in recent years.

In Saudi Arabia, sharia-compliant assets rose from just 29% of total banking assets in 2018 to 50.6% in 2020, while the corresponding figures increased from 37.9% to 42.5% in Kuwait and 19.7% to 26.6% in Qatar.

Elsewhere, in Malaysia, the world’s third-largest Islamic finance market, the proportion of sharia-compliant finance rose from 22.8% to 30.1% over the same period.

However, this trend is not universal, with Islamic banking assets in the UAE experiencing a slight fall in terms of their proportion of overall assets, and the corresponding figures in Bahrain and Oman only rising by a small margin.

Increased M&A

This increase in asset value and market share has naturally led many conventional banking institutions to turn their attention to Islamic finance. Coinciding with a broader trend of mergers and acquisitions (M&A) in the Gulf, a number of conventional institutions have sought to buy out or merge with Islamic banks in recent years.

For example, in 2019 the Abu Dhabi-headquartered Islamic finance institution Al Hilal Bank joined forces with the Abu Dhabi Commercial Bank and the Union National Bank in what is the region’s largest tie-up to date. The merged entity became the UAE’s third-largest bank, with an estimated $114.4bn in assets.

The M&A activity continued into 2020, with the National Bank of Bahrain (NBB) acquiring an 78.8% stake in the Manama-based commercial lender Bahrain Islamic Bank (BisB) in January, while in the same month Qatar’s Masraf Al Rayan finalised a merger with Al Khaliji Commercial Bank, creating Qatar’s second-largest lender and one of the region’s largest shariah-compliant groups.

Meanwhile, in July last year Oman Arab Bank completed the takeover of fellow Omani institution Alizz Islamic Bank. “On a strategic level, the integration of conventional and Islamic banks provides stronger balance sheets through a robust risk management framework,” Yaser Alsharifi, group chief strategy officer of the NBB, told OBG.  “It can also lead to an acceleration in funding and capital synergies, as well as opportunities for joint bids for larger corporate deals.”

While moving into lucrative Islamic banking markets is often a motivation for conventional banks, there are also a series of benefits that M&A can bring to Islamic lenders, which tend to be smaller than their conventional counterparts.

With NBB owning 80% of BisB, there have been two important benefits,” Hassan Jarrar, CEO of BisB, told OBG. “In terms of talent development, the employees of both banks now have more opportunities for career progression, while in terms of scaling up BisB’s operations, the acquisition by NBB has contributed the financial backing we needed to expand our reach.”

Despite the considerable benefits associated with M&A, industry figures note that there are some challenges associated with bringing two different institutions together. “Key integration challenges include unlocking the synergies value early during the integration plan,” says Alsharifi. “This can be achieved through a clearly communicated governance framework and a well-structured integration plan with effective monitoring and control of performance.

In addition, it is important to have an effective change management plan focusing on talent retention and culture harmonisation during the initial integration years.”

The ESG of Islamic finance

Looking forward, the turn towards ESG in global finance is also expected to provide Islamic banking with substantial growth opportunities, particularly in the Gulf.  In fact, there are many key parallels between ESG values and those of Islamic finance, which similarly address social and environmental factors.  For example, in its discouragement of interest, strong focus on profit- and loss-sharing and belief in not financing activities that cause societal harm.”

Courtesy: Oxford Business Group

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The Future of Financial Services Talent




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Cities like Dubai and Singapore have witnessed an influx of financial services professionals from more traditional global financial hubs

The Covid-19 pandemic led to the `Great Resignation’ as many professionals reconsidered elements of their careers, including career progression, compensation, corporate culture, training opportunities, working arrangements, and wellbeing. Employers who are receptive to these new expectations are more likely to attract and retain talent. Financial institutions recognise that they can access a wider pool of talent if they improve their career development programmes.

Since the pandemic, large financial institutions have been providing more career opportunities at new offices in cities such as Dubai, as a way to retain current employees and attract new highly skilled professionals. Dubai offers an enticing array of benefits for international talent, including its strategic location, easy immigration processes and a high quality of life that supports a wide array of lifestyles.

The “Future of Financial Services Talent” report, the third in a series covering recent trends in Dubai’s financial industry, is a collaborative effort between DIFC and LSEG Data & Analytics. It offers an overview of the financial services talent landscape and insights into the new expectations talent has from employers, which will influence management styles in the industry. Furthermore, the report outlines DIFC’s value proposition as a global hub that attracts world-class specialized talent.

Click here to access the full report: 

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Malaysia As An Islamic Finance Hub: From Humble Seed to Global Sun




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Malaysia’s rise as the world’s premier Islamic finance hub is a compelling tale of vision, perseverance, and unwavering commitment to ethical principles. It’s a story not just of numbers and financial products, but of a nation transforming itself into a beacon of hope for a more equitable and sustainable financial future. Let’s delve into the key chapters of this remarkable journey:

Planting the Seeds: 1960s-1980s – A Spark Ignites

While the concept of Islamic finance predates modern history, its modern incarnation began in the 1960s. In Malaysia, the embers of change were first stoked in the 1980s with the establishment of Bank Islam, the nation’s first dedicated Islamic bank. This pioneering step, however, faced challenges like limited awareness and nascent regulations. The industry remained a small sapling, yearning for sunlight and nourishment.

Blossoming Under Policy Sun: 1990s-2000s – Government Nurturing Propels Growth

The 1990s witnessed a transformative downpour. Recognizing the economic and ethical potential of Islamic finance, the Malaysian government adopted a proactive approach. Landmark initiatives like the Islamic Banking Act of 1989 and the establishment of the International Centre for Education in Islamic Finance (INCEIF) provided the vital nutrients the industry needed to flourish.

With government backing, public trust blossomed. Innovative products like sukuk bonds and microfinance options catering to diverse needs emerged, painting the financial landscape with vibrant hues of Sharia-compliant solutions. By the early 2000s, Malaysia had transformed from a humble sapling to a thriving tree, attracting international investors and solidifying its position as a regional Islamic finance hub.

Beyond Banking: 2010s-Present – Diversification Unfurls New Branches

The past decade has seen the Malaysian Islamic finance ecosystem diversify beyond mere banking. Sharia-compliant insurance, capital markets, wealth management, and fintech solutions have taken root, creating a sprawling canopy of ethical financial activity. This diversification strengthened Malaysia’s position as a comprehensive one-stop shop for global investors seeking Sharia-compliant solutions.

Specifying Milestones:

  • 1983: Bank Islam, the first dedicated Islamic bank in Malaysia, established.
  • 1990: Islamic Banking Act of 1989 laid the legal foundation for the industry.
  • 1993: International Centre for Education in Islamic Finance (INCEIF) established, becoming a global leader in Islamic finance education.
  • 1998: International Islamic Financial Market (IIFM) launched, facilitating cross-border sukuk issuance.
  • 2004: Global Sukuk Challenge launched, driving innovation and growth in the sukuk market.
  • 2008: Financial Sector Blueprint 2009-2015 introduced initiatives to further develop the Islamic finance industry.
  • 2011: Securities Commission Malaysia (SC) established a dedicated Islamic Capital Market Unit.
  • 2016: Financial Services Act 2013 implemented, creating a single regulatory framework for all financial institutions, including Islamic finance providers.

Looking Ahead: A Future Rooted in Innovation and Ethics

Today, Malaysia’s Islamic finance industry boasts a robust infrastructure, a diverse product range, and a thriving ecosystem of players. It contributes significantly to the national economy, attracting foreign investment, creating jobs, and promoting financial inclusion. But Malaysia’s ambitions reach beyond its present borders.

The country is actively embracing technological advancements, with blockchain and big data being explored to enhance reach and efficiency. Research and development initiatives are paving the way for new Sharia-compliant instruments, ensuring Malaysia remains at the forefront of Islamic finance innovation.

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Nigeria’s Finance Minister Advocates Shift to Islamic Finance for Economic Growth




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Nigeria’s Finance Minister and Coordinating Minister for the Economy, Wale Edun, addressed a gathering in Abuja, shedding light on the Federal Government’s decision to embrace Islamic Finance as an alternative economic model. Edun highlighted the pressing need to move away from “elevated high levels” of interest-based financing, stating that global financial dynamics can no longer sustain such practices.

Speaking at a program organized by the Security Exchange Commission (SEC) and the Islamic Financial Services Board (IFSB), Edun pointed out that both man-made and natural shocks have driven interest rates to unsustainable heights. He emphasized how these elevated rates have become a significant constraint on development, particularly due to the soaring cost of borrowing.

“The detrimental impact of high interest rates makes it impossible to access the funds needed for development, infrastructure, and even social services,” stated Minister Edun, underlining the severe consequences on vital sectors such as infrastructure, education, and healthcare.

In a notable shift towards alternative financing, Edun drew attention to a recent $30 million grant from the United Arab Emirates (UAE), dedicated to climate action and adaptation in Nigeria. What sets this grant apart is that it was funded through Islamic finance principles, signaling a change in the landscape of available resources.

“Funds these days are with those who practice Islamic finance. You better follow the money,” urged Edun, pointing to the increasing prominence of Islamic finance in global financial flows.

Edun stressed the importance of a deeper understanding and utilization of Islamic finance, labeling it “a veritable tool for financing development,” as endorsed by the IFSB (Islamic Financial Services Board). He emphasized the imperative of harnessing the potential of Islamic finance to fuel economic growth effectively.

“With Nigeria’s objective of achieving rapid, inclusive, and sustainable economic growth, it is crucial to learn from the IFSB and educate oneself to make optimal use of this financing tool,” said Edun.

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