12 reasons why Islamic banking and finance are booming globally

1. The global Muslim population has been growing very fast and has long been underserved in terms of Shariah finance. As such, more and more Islamic banks and financial institutions are setting up shops in Muslim countries under the GCC and MENA region as well as in countries like Malaysia, Oman, Qatar, the UAE, Pakistan, Saudi Arabia and Brunei Darussalam.

2. After the global financial meltdown, more and more people are seeking alternative forms of financing that is more ethical, discourage speculation and are less crisis-prone. Shariah finance meets this demand. So Islamic finance is gaining ground even in non-Muslim countries and the United Kingdom and Germany have started issuing Islamic bonds.

3. Malaysia, which is currently the world's largest marketplace for sukuk, is shifting its focus from local market development towards attracting global issuers. The country is also investing heavily in a bid to develop its human resources to give a fresh impetus to the phenomenal growth of the Islamic financing industry in the coming years.

4. Saudi Arabia is today the world’s largest Islamic banking market, with total assets estimated at US$217 billion. Its current market dynamics are so favorable for Islamic banking that it has become part of the normal retail and corporate banking and its share of the total banking market has doubled in recent years to more than 50%.

5. In a bid to emerge as the global capital of the Islamic economy, Dubai has drawn up regulations to attract sukuk issuance and trading as well as expand the Islamic insurance sector. As the primary trading hub of the MENA region, Dubai’s geographical position makes it the ideal location to serve at the convergence of Islamic finance.

6. As Britain is the European base for Middle East banks and also a major centre for the region’s investors, London is striving to become the capital of Islamic finance in the Western world. Hence, it has put in place sukuk legislation and the LSE has raised more than US$49 billion. Besides, 20 UK banks today offer partial or full Islamic banking products.

7. In some of the Islamic countries, many people do not invest in bank deposits as they believe that whatever they earn on their savings is in fact interest and thus against Shariah. So governments in these countries have started promoting Islamic banking and finance to cater to the banking needs of this segment of the unbanked population.

8. In countries like Pakistan, the federal government and the State Bank of Pakistan (SBP) have drawn up a five-year strategic plan aimed at promoting the Islamic banking and finance sector. As part of this, fresh licenses would not be issued to conventional banks, while a good number of applications for Islamic banks would soon be approved.

9. In a bid to diversify and widen its banking services, Oman announced its decision to license Islamic banking services in 2011. A Royal Decree amending the banking law was then issued and two new local banks were granted approval to operate as Islamic banks. A number of conventional banks have also established windows for Islamic banking.

10. Innovation is also one of the factors driving growth of Islamic finance. A few years back, Islamic bond market was small and sukuks were of five years or less. Lately bonds with longer-term offers, perpetual bonds and hybrid capital issues that allow a mix of debt and equity launched by Islamic banks have started attracting more and more investors.

11. The latest Global Islamic Finance Report (GIFR) says by 2020 the Islamic banking and finance (IBF) sector in at least six nations across the globe will have attained a market share of more than 50% of the total financial sector in these countries. They include Brunei Darussalam, Saudi Arabia, Kuwait, Qatar, Malaysia and the UAE.

12. Because of growing demand for sukuks and takaful, Islamic finance is rapidly becoming an important revenue generator for banks and financial institutions. They also offer more choices to companies and investors and allow issuers to offer products tailored to specific needs. This is also supporting rapid growth of the Islamic finance market globally.