Since its inception, modern Islamic commercial banking has been intrinsically linked with the UAE. The formation of Dubai Islamic Bank over 40 years ago is widely regarded as the birth of the sector as it was the first financial institution to incorporate the principles of Islam into all of its practices. In the short span of time since then, the industry has rapidly established a firm foothold in the world of banking and finance and has steadily progressed from being a select ‘niche’ to a fast-growing ‘norm’.
The last financial crisis revealed the true value of this relatively nascent industry highlighting it as a transparent and fair system of banking for people, corporations, and governments alike. Islamic finance is now increasingly being recognised for its innovative and modern practices as well. Reflective of the industry’s success, global Islamic banking assets are expected to reach $1 trillion by the end of 2015, growing at a CAGR of 16 percent a year, according to EY. Indicative of the potential yet to be realised, the global industry profit pool is expected to exceed $30bn by 2020, as Sharia-compliant financing increases its share in emerging markets.
Looking to 2016 and beyond, innovation will continue to be critical for the ongoing development of the industry. For instance, efficiency can still be improved as Sharia-compliant institutions still lag behind their conventional counterparts, and are increasingly looking to embrace technological innovation in order to minimise operational costs as well as project a modern face of banking that would appeal to a younger generation of customers, which will be critical for ongoing growth.
Another area of development is the Islamic asset management sector, as the range of services available remains quite limited and there is a general lack of quality products in this space. To this end, Islamic investment instruments and securities related to savings and pension plans are also an area where significant progress can be made in order to appeal to a broader range of customers. Indicative of the untapped potential here, the total value of pension funds’ assets globally exceed $27 trillion, while those that are Sharia-compliant make up just 0.001 percent in spite of Muslims making up almost 25 percent of the world’s population.
(Arabian Business.Com / 12 January 2015)---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com