The Islamic financing industry is growing 50 per cent faster than conventional banking. As of 2011, the global asset value of the Islamic finance industry is estimated to be at US$1 trillion. The figure is expected to reach US$5 trillion over the next five years. Indeed, there is no stopping the fast growth of Islamic banking with Islamic banks setting up shop in countries under the Gulf Cooperation Council (GCC), Malaysia, the UK, and even in Africa along with many other regions.
Islamic finance offers the ideal platform to boost ‘green financing’ and promote SRI (social responsibility investment). As syariah rules prohibit participation in businesses involving alcohol, pork, and gambling, Islamic banks only support businesses that adhere to ethical and moral nature values when it comes to investments.
Demand for syariah-compliant products continues to rise alongside a growing Muslim population. Muslims predicted to account for more than 25 per cent of the world population in 2013, growing twice as fast as the world’s non-Muslim population. Islamic banks address this group’s need and natural inclination to prefer syariah-compliant financial products.
Even non-Muslim investors see the potential for profit in Islamic banking. Islamic financial products, as a rule, carry lower risk investments while enabling them to earn a profit and—at the same time—diversify their portfolio to further reduce risk.
Western investors can track the Islamic financing industry through international rating systems. When purchasing sukuk or Islamic bonds, they can easily assess the strengths, weaknesses, and risk of the bonds by simply referring to benchmarks that track the financial industry.
Countries belonging to the GCC want Syariah-compliant products for investment.
Those belonging to this group are some of the wealthiest countries in the world. As the economies of Europe and the US struggle to stabilise, GCC nations are well-funded and their needs well met by Islamic banks.
Islamic financial products, though they might also come with their own set of complex rules, are far simpler to understand than their conventional counterparts. For one, they are stricter with contracts and as focused. Islamic financial institutions also have scholars that offer consumers guidance with every venture and proceeding. They follow strict principles that ensure every single transaction is carried out according to Syariah law.
Islamic financing saw a 25 per cent increase in value of assets from 2007 to 2008, while most of the world’s economies battled the worst financial crisis. It is, thus, safe to say that investing in Islamic financing is a possible way to avert potential crises in the world economy.
It is not against Islamic laws to accumulate wealth but all investors need to exercise awareness and shared responsibility for poverty in the world. Through the concept of zakat, or giving a portion of wealth to charity, Islamic finance aims to reduce economic disparity across the globe.
Islamic investors avoid choices that cause harm to people and the environment. Through a thoughtful decision-making process, investors are able to make socially responsible choices that encourage investments that are good for the long-term.
Malaysia’s Islamic assets reached US$65 billion in the financial year 2012/ 2013, reports the Ministry of Finance. National Islamic banking assets registered an average growth rate of 18 per cent to 20 per cent annually to reach US$ 65.6 billion. The government just invested in the development of human resources for the Islamic financing industry so as to ensure it catches up to the industry’s phenomenal growth.
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com