Striking as it is, the utilization of financial technologies to enable the growth of a millennial sector shouldn’t come as a surprise: looking at the history of Islamic Finance, the sector has always benefited from financial innovations - sometimes even pioneering them. The Suftajah for instance was an answer to the need to secure the integrity of money transactions. This form of bill of exchange or letter of credit later became the foundation on which many other financial instruments in use today were developed.
According to the IMF, Islamic finance assets grew from $200 billion in 2003 to $1.8 trillion at the end of 2013, making it one of the fastest-growing sector within the financial industry. And yet, Islamic Finance still represents less than 1% of the global financial industry, which leads analysts to predict this market to reach a stunning $3.4 trillion by the end of 2018.
Today, 5 countries (Malaysia, Saudi Arabia, the UAE, Kuwait, and Qatar) hold more than 60% of the global Islamic Finance assets with a clear gap between the top two (Malaysia and Saudi Arabia) and the rest. Indeed, both countries respectively own more than 20% of all Islamic Finance assets. The vast majority of those assets can be found in Islamic Banks (this segment representing more than 75% of global assets), but other fast-growing segments are of significant importance. The Sukuk market for instance: representing 18% of global assets, Sukuk is a product similar to asset-backed securities, except that it doesn’t pay interests and its performance is entirely linked to the one its underlying assets.
This growth will mainly be driven by the expansion of current Islamic financial centers, but the adoption of financial technology will also allow the Muslim diaspora to invest in Sharia-compliant businesses all over the world. It has been established that “personal moral convictions drive some individuals to invest in socially responsible companies “and that consequently, “diaspora members may be […] motivated by the emotional returns they receive from investing”. With nearly 25% of the world population identifying as Muslims, Fintech is likely to facilitate cross-border investments. This will allow individuals and institutions to invest in economically viable projects, in accordance with their religious convictions. But it will also help non-Muslim investors seeking to enter fast-growing markets, at a lower cost and with more visibility than before.
In that spirit, the first Islamic banking internet-based platform that combines the expertise of Islamic banks and the efficiency of technology was created in Malaysia. The Investment Account Platform is backed by six Malaysian Islamic banks, and its purpose is to become a central marketplace to finance SMEs whose activities fall within the Islamic law. In the words of Muhammad bin Ibrahim, governor of the Central Bank of Malaysia, this initiative “opens up new possibilities for improving efficiencies, reducing wastage and enhancing the customer experience”. Ultimately, it will provide “opportunities for industry players to radically transform operational models by adopting digitization strategies that will be able to deliver much greater scale”.
At Crowd Valley, we look forward to partnering with both established institutions and new innovators to provide more services and value to the end users as the financial services market continues its modernization in the Islamic Finance sector.
If not mentioned otherwise, data contained in this post was retrieved from www.islamicfinance.com , a resource for anybody interested to learn more about Islamic Finance.
Born and raised in France, Enzo began working within Fintech in 2014, covering the regulatory changes than enabled the creation of French equity crowdfunding platforms for Lyon Place Financière, an association that regroups all actors of Auvergne-Rhône-Alpes’ financial place. There, he also worked on an exhaustive analysis of the regional stock market among other duties. Enzo has lived and studied in different countries, including the United States (Philadelphia & Monroe,MI) and France (Paris & Lyon).