Bahrain, the UAE, and Saudi Arabia have ranked in the world’s top five Islamic finance economies, according to the latest annual Islamic Finance Development Indicator (IFDI).
Bahrain ranked in third place globally this year, with the UAE and Saudi Arabia ranking fourth and fifth respectively.
The IFDI provides an annual rank for each economy in the global Islamic finance industry, aggregating scores across five areas: quantitative development, knowledge, governance, corporate social responsibility, and awareness.
Mr. Fahad Yateem, Director of Islamic Financial Institutions Supervision Directorate at the Central Bank of Bahrain said: “The recently launched Bahrain Open Banking Framework is the first in the world to incorporate Islamic Finance.”
Dalal Buhejji, Director, Business Development, Financial Services at the EDB said that Bahrain’s Islamic finance sector has $96 bn worth of assets, accounting for 124% of Bahrain’s GDP.
The report recognized UAE’s efforts in the governance space and as the top Islamic Finance educator in the region boasting the highest number of Islamic Finance Education Providers across the GCC at 52, including 12 that provide degrees.
“Despite the current pandemic situation that has affected Islamic and conventional finance markets in the short-term, we expect strong growth in the Islamic finance market to continue to increase,” said Wasim Saifi, Deputy CEO-Consumer Banking and Wealth Management at Emirates Islamic.
The combined assets of the world’s Islamic finance market have surpassed $2trn, and the UAE is home to around $222bn of that total.
The UAE Ministry of Finance announced plans to create a “unified global legal and legislative framework” for the sector.
DIFC has been investing heavily in fintech to spur the growth of the Islamic finance industry. The FinTech Hive accelerator partners with specialist organizations that include the Dubai Islamic Economy Development Centre (DIEDC) and various Islamic banks.
DIFC is also involved in the Climate Bonds Initiative to grow the ‘green sukuk’ market.
The latest edition of the Islamic Banking Index, a benchmark survey revealing the progress, penetration, and perception of the Shariah-compliant banking sector in the UAE showed the overall penetration of Islamic finance products among Muslim respondents was consistent, at 70% in 2019 and 69% in 2020. Among non-Muslims, there was an increase in uptake in Islamic credit cards, from 24% in 2019 to 28% in 2020, and Islamic savings accounts from 28% to 32% respectively.
Saudi Arabia could become a global leader in the Islamic financial services industry particularly by capitalizing on its distinctiveness in two areas:
Awqāf: As a spiritual destination for Muslims worldwide, the Kingdom offers favorable incentives and can benefit from sizeable opportunities in terms of investment and spending.
Small and Medium Enterprises (SMEs): Mobilizing resources for the SMEs through sukūk, equity, crowdfunding, and venture capital would give the Islamic finance industry an edge in innovation, diversity, and economic impact.
By the end of 2018, Islamic finance assets in Saudi Arabia reached a remarkable $879.2 billion, making the Kingdom the largest Islamic finance market globally in economies with dual conventional and Islamic financial sectors.
Today, Baker McKenzie and Clifford Chance are advising the government and Saudi Electricity Company (SEC) on the world’s largest-ever Islamic finance transaction related to a $ 44.78 bn mudaraba-based subordinated perpetual financial “equity-like” instrument.
Global and MENA Islamic finance growth
Global Islamic Finance assets are forecast to reach $3.69 trillion by 2024 according to the 2020 Islamic Finance Development Report.
According to the report, global Islamic finance assets increased by 14% year-on-year totaling $2.88 trn in 2019. The Islamic Finance assets of Gulf Cooperation Council (GCC) reached $1.2 trn in 2019, followed by the Middle East and North Africa (MENA) excluding the GCC at $755 bn, and Southeast Asia at $685 bn.
The Islamic banking sector contributes the bulk of the global Islamic finance assets. The sector grew 14% in 2019 to $2 trn in global assets. This compares with just 1% growth in 2018 and average annual growth of 5% over the years 2015 to 2018.
David Craig, CEO of Refinitiv, said “This market is worth nearly $3 trillion already and I’m excited about its future, particularly when it comes to Sukuks and because Islamic finance has so much in common with sustainable finance – one of the most significant trends in global business today.”