By Miljan Stamenkovic, General Manager MENA at Mambu
The Islamic finance market is estimated to be worth $2 trillion globally, with this figure set to hit $3.8 trn by 2023. Driving this demand are millennials and Gen Z Muslims, who are expected to account for three-quarters of Islamic banking revenue within the next ten years.
These tech-savvy generations increasingly want their banks to behave ethically, but don’t want to compromise on online services or ease of use.
According to Mambu’s Faith & Finance report, more than half of young Muslims would adopt Islamic banking if it were more accessible, revealing a lack of digital services is holding the industry back among this key demographic.
Faith and finance
Millennials and Gen Z-ers have grown up in a world where access to information has been available at their fingertips. With most people under the age of 35 now owning a mobile device, this important consumer sector has become accustomed to user-friendly services available on demand.
Their tech-savvy nature has also made them more aware of global trends than any generation before them. And they’re learning about the world around them at a much earlier age.
Our research shows that three in four young Muslims want their banks to make investments that ‘do good in the world’. Specifically, two-thirds (62%) are opposed to their bank lending to tobacco companies and 69% would rather their bank not lend to gambling institutions.
They want to align their faith with their financial practices. But this isn’t easy.
The digital ‘dealbreaker’
Barriers to adoption are threatening the growth potential for Islamic finance, as more than three-quarters (76%) of young Muslims say the availability of online banking services is a deal breaker.
Specifically, 74% said it’s important they can access their bank’s services via a mobile app and 80% said it’s critical they can access banking services anywhere, at any time.
While it’s clear there’s demand from young people for their banks to behave ethically, this can’t be at the expense of the convenience and accessibility they’ve come to expect in a digital world.
If Islamic banks want to tap into this digitally-savvy user base, they must not only offer like-for-like services as incumbent banks but an Amazon or Netflix-like customer experience – as well as being sharia-compliant.
That means investing in the latest digital banking solutions to provide young people with services that meet their lifestyle needs – from mobile wallets and split payments to budgeting tools and spending trackers.
Rise of Islamic fintechs
With technology poised to play an integral role in shaping the next generation of Islamic banking services, a new wave of digital challengers has recognized this market opportunity.
Over the last few years, there has been a boom in Islamic fintechs; technology providers dedicated to providing Sharia-compliant financial services – beyond Muslim-majority business hubs.
The UK leads the way with 27 Islamic fintechs, while Malaysia has a total of 19 companies. That’s more than the United Arab Emirates which has 15 sharia-compliant fintechs.
Globally, it’s estimated this industry will be worth around $125 billion by 2025. These market entrants are spearheading innovation within the sector, providing an avenue for young Muslims to bank in a way that satisfies their digital needs, whilst also remaining ethical.
A final word
The appeal of Islamic banking will only continue to grow as younger generations drive financial change. It reflects a wider demand for ethical banking services in the wake of Covid-19, as consumers seek to make more socially conscious choices post-pandemic.
If Islamic banks want to capitalize on this unique growth opportunity, they must innovate and tailor their offering for these digital natives, just like other tech companies. This audience is more globally mobile than their parents and grandparents, and will soon make up the core user base for these financial institutions.
Only by catering to both their ethical and accessibility needs can Islamic banks attract new customers and realize the potential for Sharia-compliant services in a cloud-enabled world.