Current major developments in Islamic banking and finance


1. Islamic finance is today a $2.2 trillion industry spread over more than 60 countries with the bulk of it concentrated in very few markets. Data compiled by the Union of Arab Banks’ research department shows that just 10 countries account for 95% of the world’s Shariah compliant assets. Iran leads the way with 30% of the total market followed by Saudi Arabia (24%), Malaysia (11%), the United Arab Emirates (10%), Qatar (6%), Kuwait (5%), Bahrain (4%), Bangladesh (1.8%), Indonesia (1.6%) and Pakistan (1%). These countries drive the growth of Islamic finance, set industry standards and foster innovation. Over the past decade, Islamic finance grew at an exponential yearly pace of 10%-12%.

2. Due to the lack of demand and understanding, the Islamic pension fund segment has long been seen as lagging behind. Over the past few years, only a small number of countries including Malaysia, Pakistan, Turkey, Iran, Australia and the UK have been offering state-backed Islamic pension funds. However, the landscape is moving with the recent introduction of Islamic retirement schemes in Kenya and market players believe that pension funds will play a key role in the future of the Islamic asset management industry.

3. Over the past three years, interest in consolidation strategy in Islamic finance has grown rapidly and become repetitive in several markets and geographies. This was first pioneered in Bahrain, and over a dozen Islamic financial institutions benefited from this overdue needed strategy. The pattern was then followed in the UAE, Saudi Arabia, Qatar, Malaysia and elsewhere in the world. Perhaps the key driver for this consolidation plan could be a combination of business and financial efficiency workaround plans within the increasingly competitive banking and Takaful practices.

4. Risk management can be defined as forecasting financial risks and taking the necessary measures to minimize their impact. Risk management in Islamic banking is not significantly different from conventional banking. Overall, there are six main risks, namely credit risk, equity investment risk, market risk, liquidity risk, rate of return risk and operational risk. However, there are additional risks that are unique to the Shariah industry, including the possibility of Shariah non-compliance.

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