It could have began life as a distinct segment arm of the banking sector, however Islamic finance has grown to such an extent that establishments the world over – even these exterior of Muslim-majority international locations – have needed to take discover. Islamic finance is predicted to develop 5 p.c all through 2020, in response to S&P Global Ratings, regardless of some downward strain being utilized as a result of poor financial circumstances in core markets.
In the 12 months to come back, the sector is predicted to proceed its progress, increasing to new frontiers and embracing developments within the business. The institution of worldwide our bodies just like the Accounting and Auditing Organisation for Islamic Financial Institutions will additional enhance belief within the business, even because it stays dedicated to innovation.
The latest slowing fee of progress comes as a priority to some operators, which should establish methods to return the business to the height ranges of progress witnessed a couple of years in the past. The 2020 World Finance Islamic Finance Awards recognise the organisations which can be already making inroads on this space, exhibiting resilience when instances are powerful and laying the groundwork for future success.
Riding the wave
As with many different areas of the banking sector, fintech is ready to have a considerable impression on Islamic finance in 2020. In specific, blockchain might present enormous advantages by way of sukuk issuance. Currently, there are three fundamental challenges associated to sukuk, or Sharia-compliant bonds. These concern the traceability of underlying belongings, money flows and buyers.
Africa, with its sizeable Muslim inhabitants, offers enormous progress potential that’s solely now being explored
Blockchain solves these points by boosting safety and lowering the danger of identification theft. In October of final 12 months, microfinance cooperative BMT Bina Ummah turned the primary organisation to problem a sukuk on a public blockchain. Other monetary establishments have adopted swimsuit, benefitting from the transparency that’s attribute of blockchain-based transactions.
The fintech wave might additionally assist carry Islamic finance to a bigger market. The widespread use of smartphones has helped to carry a sizeable vary of monetary providers to people who would beforehand have been labeled as underbanked or unbanked. In reality, in response to PricewaterhouseCoopers, 46 p.c of customers now use digital channels completely for his or her banking wants. Islamic finance must discover a approach of exploiting this pattern.
In some elements of the Muslim world, spiritual issues can stop people from opening a checking account – this cause was cited by 34 p.c of adults in Afghanistan and 27 p.c in Iraq and Tunisia, a Thomson Reuters research discovered. Fintech corporations ought to view this as an enormous alternative and set about launching Sharia-compliant digital wallets that provide people a variety of providers, from microcredit to cash transfers, even when they don’t current the complete array of choices that accompany conventional financial institution accounts.
Furthermore, fintech providers might present recommendation and training in areas surrounding Islamic finance. Research performed by Gatehouse Bank final 12 months discovered that many Muslims nonetheless depend on spiritual students for monetary recommendation and greater than 60 p.c stay sceptical about how compliant with Sharia regulation some monetary merchandise actually are. Digital communication offers a approach for monetary corporations to attach with these people, permitting them to supply recommendation and reassurance.
Going to market
One of the most important complications for companies specialising in Islamic finance is financial slowdowns of their core markets. In many respects, the final 12 months has not proved to be a beneficial one, with each the Turkish and Iranian economies faring significantly badly. Other main markets for Islamic finance, together with the Gulf states, stay topic to financial turbulence that’s depending on fluctuations within the oil market.
ESG issues are having a big impression throughout the monetary world, and Islamic finance guarantees to be no exception
It is important, subsequently, that Islamic finance services and products make reaching new clients a precedence. For instance, Africa, with its sizeable Muslim inhabitants, offers enormous progress potential that’s solely now being explored. Despite the truth that Islamic finance emerged on the continent again in 2013, it accounts for simply 0.5 p.c of the world’s sukuk.
“Islamic [banks’] efficiency in massive African banking techniques akin to South Africa and Nigeria ought to stay strong over the subsequent 12 to 18 months,” Akin Majekodunmi, Vice President and Senior Credit Officer at Moody’s, defined in a report late final 12 months. “And Africa’s massive Muslim inhabitants, which is predominantly unbanked or underserved, will proceed to offer a stable basis [on] which Islamic banking belongings, and thus earnings, can develop quickly.”
One approach wherein monetary organisations can help with the unfold of Islamic finance is by bettering standardisation. Currently, totally different jurisdictions have their very own standards for what counts as Sharia-compliant finance, which confuses issues for buyers and different financial institution purchasers. Fortunately, efforts are underway to create a extra standardised atmosphere: the UAE has established the Higher Sharia Authority, which met for the primary time in February 2018 and seeks to develop a transparent and clear framework round Sharia merchandise whereas working with different world our bodies to pursue uniformity. Along related strains, Malaysia is aiming to standardise its Sharia contracts.
Environmental, social and governance (ESG) issues are having a big impression throughout the monetary world, and Islamic finance guarantees to be no exception. As corporations search to align themselves with a extra sustainable and socially accountable company world, Islamic finance has a chance to take a number one function. In reality, Sharia-compliant finance and ESG ideas ought to sit alongside each other comparatively comfortably.
“Islamic finance’s objective to guard life aligns with sustainable finance ideas, which emphasise environmental and social safety,” learn an S&P Global report final 12 months. “These embody… refraining from creating or financing operations that would hurt the atmosphere or the well being or wellbeing of humankind. Green sukuk is an instance of devices that can be utilized to finance environmentally pleasant initiatives.”
In phrases of governance, Islamic finance is usually topic to larger scrutiny than typical merchandise, normally from Sharia boards. Recent knowledge from Refinitiv suggests a direct correlation between ESG standards and Islamic finance, with Sharia-compliant corporations scoring three p.c larger by way of governance. They additionally carried out higher in response to environmental and social standards – by 7.three p.c and 7 p.c respectively.
Once once more, pushing their ESG credentials to the fore ought to assist Islamic finance merchandise to succeed in a broader viewers. Many monetary establishments are already showcasing the shared ideas between the 2 monetary frameworks, and additional emphasis on this space will solely assist issues.
As the Islamic finance market seems to be to return to the degrees of progress it was delivering a couple of years in the past, it ought to discover its previous and future. The sector has a wealthy historical past of inserting moral issues above revenue and it ought to proceed to faucet into this ideology, however it should additionally look to technological developments that can assist it attain extra clients. The World Finance Islamic Finance Awards 2020 spotlight the organisations which can be persevering with to maneuver the business ahead with out dropping sight of its beginnings.
World Finance Islamic Finance Awards 2020
Best Islamic banks
Al Baraka Bank of Algeria
Bahrain Islamic Bank
Islami Bank Bangladesh
Bank Islam Brunei Darussalam
Abu Dhabi Islamic Bank Egypt
Maybank Syariah Indonesia
Jordan Islamic Bank
National Amanah – National Bank of Kenya
Kuwait International Bank
Arab Finance House
Meethaq Islamic Banking
Arab Islamic Bank
Qatar Islamic Bank
Al Salam Bank
Albaraka Türk Participation Bank
Bank of Whittier
Islamic Banking Chairman of the Year
Sheikh Mohammed Al-Jarrah Al-Sabah, Chairman at Kuwait International Bank
Business Leadership and Outstanding Contribution to Islamic Finance
Musa Shihadeh, Chairman of the Board of Directors at Jordan Islamic Bank
Islamic Banker of the Year
Bassel Gamal, CEO at Qatar Islamic Bank
Most Innovative Islamic Bank
Fastest Growing Islamic Bank
Coris Bank International Baraka
Best Islamic Treasury Management
Dubai Islamic Bank
Best Project Finance Provider
Qatar International Islamic Bank
Best Islamic Fund Management
Best Islamic Asset Management
Best Islamic Wealth Management
Abu Dhabi Islamic Bank
Best Islamic Investment Banking Services
Best Sharia-compliant Brokerage House
Best Islamic Insurance Company
Best Islamic SME Support & Finance
Qatar Islamic Bank
Best Islamic Banking & Finance Technology Provider
ICS Financial Systems
Best Core Banking Systems Implementer, Middle East
Masaref Business and Systems Consultancy
Best Stock Exchange for Islamic Listings
London Stock Exchange
Real Estate Sukuk Deal of the Year
Sustainable Energy Sukuk Deal of the Year
Majid Al Futtaim
Sovereign Sukuk Deal of the Year
Oman Ministry of Finance
Best Participating Bank for Customer Service Quality in Morocco
Best Participating Bank for Customer Service Quality in Turkey
Ziraat Katilim Bankasi