The industry

A young and growing industry

The Islamic banking industry today stands at several hundred billion dollars (estimates vary), and consists of more than 300 financial institutions in and outside the Muslim world. It is the product of the collective effort of bankers, economists, and Islamic legal scholars over the past several decades to develop financial solutions that meet the religious requirements of Muslims.

It is a young industry and a growing industry, and continues to evolve and expand both financially and geographically. It is indigenous and community-focused: it caters to devout Muslims in indigenous Muslim societies as well as in Muslim minorities of non-Muslim countries. Furthermore, it is an inclusive paradigm: non-Muslim individuals and communities that seek ethical financial solutions have also been attracted to Islamic banking.

The birth of modern Islamic banking

The first modern Islamic financial institutions emerged in the 1960s and 1970s. Since then, Islamic banking has spread to a large number of Muslim countries, including the GCC and the Arab world at large, South and Southeast Asia, and even Muslim communities in the West. Bahrain is considered a hub for Islamic banking, with significant activity also taking place in Kuala Lumpur and London amongst others. Islamic financial institutions have taken the form of commercial banks, investment banks, investment and finance companies, insurance (takaful) companies, and financial service companies. They follow different banking models: private institutions in a conventional economy (as in the GCC and the West), attempts at national Islamic banking systems (as in Sudan, Iran and Pakistan), and dual banking models (as in Malaysia and the UAE). They also take different forms: wholly Islamic institutions, Islamic subsidiaries of conventional banking groups, and Islamic banking windows within conventional banks.

Islamic banking today

This is an industry that is still evolving, developing and growing. It has gone from commercial banking to syndicated transactions and equities, and more recently, into debt issuance and structured products. Its sophistication and product offering have developed along with this change. At an earlier stage, industry growth was in part a reflection of economic growth in the Islamic world, fuelled primarily by oil wealth. This created a growing middle-wealth segment and hence made banking a necessary service to the larger segment of the population. In the past several years, increased awareness about Islamic banking has led to conversion from conventional banking and continued high growth (15-20% in key markets).