Islamic Finance in Global Economy
With about 1.9 billion Muslims around the world, Islamic Finance has shown its potential through its vast reach around the globe. Although Islamic Finance is just a small part of global finance, it is considered one of the fastest developing industries. Its assets exceed $2 trillion and will keep growing to reach about $3.8 trillion by the year 2023.
The Union of Arab Bank states that about 10 countries have accounted for 95% of the Shariah-compliant assets. Stating off from highest to lowest; Iran at 30%, Saudi Arabia at 24%, Malaysia at 11%, the UAE at 10%, Qatar at 6%, Kuwait 5%, Bahrain 4%, Bangladesh 1.8%, Indonesia 1.6%, and Pakistan at 1%.
Although Islamic Finance has existed since the 7th century, its formalization took place from the 1960s. This form of finance means that individuals and businesses raise capital by following the rules and regulations of the Sharia Law. This includes any type of investments which are allowed under this law. In easier words, Islamic Finance is a unique type of socially responsible investment.
In the previous June, Fintech companies that offer Islamic Finance have been introduced. UK has 27 Islamic Fintech, with Malaysia that has 19 companies, then the UAE with 15, Indonesia with 13, then Saudi Arab with 9, and the USA with 9 businesses.
The Middle East is quite involved in Islamic Finance. The MEASA region is worth about $2.1 trillion with the growing demand and popularity of Sharia Law. In this region, 14% of the total assets in banking are Shariah-compliant assets. Moreover, the Gulf Cooperation Council’s banking assets related to Sharia law take up 25% of the total banking assets. This shows just how important Islamic Finance is and will continue to be.
In Africa, there are about 80 Islamic Finance Institutes. Other countries like Senegal, Nigeria, and Kenya have also implemented this system to banking.
In the UAE, the DIFC, Dubai International Financial Centre, noticed the growth in the Islamic assets’ volume, which is how currently Islamic Fintechs are receiving support from DIFC.
Another huge financial hub, Abu Dhabi Global Market (ADGM), is also supporting Sharia Law and Islamic Finance.
There has been strong development in the Sukuk market. The Islamic system will be given a lot of focus in all countries in the GCC. These countries will then be able to enjoy the benefits from the regulatory frameworks.
A convergence in Islamic Finance has started, which goes across wealth management, banking, trade finance, investment, and other key facets.
Executing the Sharia Law has become easier due to the development of technology. Entering global systems of banking has become more transparent and flexible as well and people of this industry are excited about these developments.
Thanks to technology, it has become easier to see how customers want to operate. The evidence behind this is the empathic growth of Fintechs on Sharia Law, which shows the low barriers in the life cycle of the market and its development.
There is a lot of potential for Islamic Finance if it can be structured in a way to help markets suffering from the recession caused by COVID-19. It is clear that Islamic Finance is playing a huge role in helping the global economy grow.