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Islamic finance is increasingly attracting attention among investors worldwide, especially in the past years which showed a growth twice than that of before in assets. Islamic financing emerged 50 years ago, in countries with large Muslim populations who were keen to ensure their sources of funding were governed by the requirements of Shariah and the principles of Islam. The reason for the growing interest is due to three factors—greater appreciation for the role that Islamic finance plays in responsible investing; geographical interest in markets where Islamic finance is gaining prominence; as well as digital transformation, making Islamic investments more accessible.
In 2019, Islamic finance assets amounted to US$2.88 trillion, the highest recorded growth for the industry since the global financial crisis. But despite the steady growth in the past years for global financial markets, it came to a small halt in the year 2020, due to the COVID-19 pandemic. Due to its impact, the value of Islamic finance assets showed little to no growth in that that year.
Reports canvassed around 135 countries and based its findings on five key metrics comprising of quantitative development, knowledge, governance, awareness, and CSR. It showed that Islamic finance assets of GCC countries reached $1.2 trillion in 2019, followed by Middle East and North Africa countries at $755bn (excluding the GCC), and Southeast Asia at $685bn.
The Islamic banking sector contributes the bulk of the global Islamic finance assets. The sector grew 14 per cent in 2019, equating to $1.99 trillion in global assets. It was a significant growth recorded in 2019, given that in 2018 the sector grew just 1 per cent and averaged an annual growth of 5 per cent from 2015 to 2018.
The acceleration of technology as a result of COVID-19 has also benefited the Islamic finance industry as more financial institutions are now offering their products via digital platforms, making it easier for Muslim and non-Muslim investors to access. Sustainability has also become a more important consideration for investors, which could potentially lead to increased take-up by non-Muslim investors who are drawn to the ethical and responsible investing dynamics of Islamic finance products and services.
As more awareness and knowledge of Islamic finance starts to build up in non-Muslim countries, we expect to see steady growth in Islamic finance assets and expansion in Shariah-compliant investment products and services to cater to the rising demand. The Islamic Finance industry is only expected to grow more in the years to come. It is expected that by 2024 there will be a rebound and growth at a 5-year CAGR of 5% from 2019 onwards to reach $3.69 trillion.
