Fifty years ago, Islamic banking and finance were virtually unheard of. Today, the industry is on the verge of reaching $5 trillion in assets by 2025, a remarkable feat for a sector that began as a response to the financial needs of Muslims seeking services aligned with Islamic Shari’ah and principles.
Despite being relatively small compared to conventional banking—representing only about 1 to 1.5% of global assets Islamic finance has proven its resilience. Having weathered numerous global financial crises and the COVID-19 pandemic, the industry is not only growing but thriving. It is now practiced in over 80 countries, covering large parts of the banking sector in the GCC, West Asia, Africa, South Asia, the Pacific, Europe, and beyond.
The success of Islamic finance can be attributed to its ethical foundations, its connection to the real economy, and its alignment with sustainable development goals. The industry is expanding at an annual growth rate of 10%, with increasing interest from governments, corporations, and individuals worldwide.
Countries like Saudi Arabia, the UAE, Kuwait, Malaysia, Indonesia, and Egypt are leading the charge in developing and promoting Islamic finance. In Malaysia, for instance, Islamic finance constitutes about 40% of the total financial ecosystem.
Innovations such as sukuks (Islamic bonds), digital transformation, and sustainability are driving the industry forward. While the lack of global standardization once hindered growth, institutions like the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), the International Islamic Financial Markets (IIFM), and the Islamic Financial Services Board (IFSB) have since established global standards.
Technology has played a crucial role in the industry’s development, enabling seamless and customer-oriented services. Additionally, Islamic finance has expanded into social finance, supporting small and medium-sized enterprises (SMEs) and alleviating poverty through crowdfunding and microfinance.
Islamic finance’s focus on social good extends to green sukuks, aimed at addressing climate change and promoting a greener future. The industry’s asset-based, non-speculative nature makes it particularly beneficial for financing trade, agriculture, health services, education, real estate, and more.
In summary, Islamic finance offers a viable alternative to conventional finance, marked by its ethical approach, focus on real economic development, and commitment to social and environmental sustainability. As the industry continues to grow, it stands as a testament to the enduring appeal of finance rooted in principles of fairness, transparency, and social responsibility.
(Dr. Suleiman Walhad writes on the Horn of Africa economies and politics. He can be reached at [email protected].)
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