Islamic finance – High growth potential but serious challenges persist

The Islamic finance industry has witnessed strong double digit growth in recent years, and yet serious problems persist that are likely to stop it from growing beyond a certain point. These include a lack of access to financial institutions in Muslim majority nations, general instability in large parts of the Muslim world, as well as a lack of concensus amongst the Islamic clergy from their various respective schools of thought, as to what exactly is "Islamic finance".

Key Highlights

– Whilst sharia compliant financial services have existed ever since the beginning of Islam in some shape or form, it is only in the 1970s that they were increasingly centralized and adapted to better fit the modern economic system.

– According to one study around 40% of Muslims rejected non-sharia loans, which is around 700 million people, a massive number.

– Despite strong growth potential, serious problems persist in this industry. These range from banks and financial institutions often finding themselves unable to reach large proportions of their customer base, to a general lack of scholarly consensus with regards to what qualifies as sharia compliant finance.

Scope

– Covers the background of the Islamic finance industry

– States the most common types of Islamic financial services

– Outlines in which countries the industry has grown the most and where it has the potential to continue doing so

– Assesses serious problems within the industry

– Concludes that the strong growth potential of this industry cannot be achieved if these serious problems are not resolved.

Reasons to buy

- What is the Islamic finance industry?

- Which types of Islamic financial services exist?

- Where is this industry the most dominant?

- Which serious problems still trouble the industry?

Table of Contents

Table of Contents

Overview 2

Catalyst 2

Summary 2

Islamic finance - The Basics 6

History of Islamic finance 6

Some major forms of Islamic finance 7

Sukuk 7

Ijarah 7

Mudaraba 7

Islamic finance today - the numbers 8

Nine countries dominate the Islamic finance industry 8

Non-Islamic banks and countries increasingly opening up to Islamic finance 9

Strong Potential for Growth in the Islamic finance Industry 11

MENA (excluding GCC), West Africa and Central Asia largely untapped 11

Sharia compliant microfinance schemes have large potential, as a third of Muslims live in poverty 11

Problems the Islamic finance industry is facing 13

Lack of access to financial institutions in Muslim majority nations 13

Political instability discouraging interest 14

Differences amongst the clergy with regards to what amounts to sharia compliant finance 14

Conclusions 15

Strong growth potential in this industry if scholarly consensus, political stability and greater geographic reach can be

achieved 15

Appendix 16

Sources 16

Further Reading 17

Ask the analyst 18

About MarketLine 18

Disclaimer 18

List of Tables

List of Tables

Table 1: Top nine Islamic finance markets total population’s, 2016 8

Table 2: Islamic finance national market share in terms of total banking assets, 2015 9

List of Figures

List of Figures

Figure 1: Al Rajhi Bank, currently the world’s largest Islamic bank based on assets 6

Figure 2: David Cameron speaking at the ”˜World Islamic Economic Forum’ held in London, 2013 10

Figure 3: Countries by population living in urban areas, 2015 13

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