Recent data reveals that the global Islamic banking sector will reach an impressive $4 trillion by 2026. A State of Fintech report by red_mad_robot, a digital enabler, underscores the sector’s remarkable surge. Hence, it grew from $1.8 trillion in 2018 to a staggering $2.8 trillion in 2021.
Gulf Cooperation Council’s (GCC) dominance
The report highlights the pivotal role played by GCC countries, which command 43 percent of global Islamic banking assets. Leading the pack is Iran at 37 percent. Saudi Arabia follows at 22 percent. Thus, both countries collectively control 59 percent of the total assets.
Moreover, Islamic fintech is emerging as a force, experiencing substantial growth. Islamic fintech transactions were estimated at $79 billion in 2021. Furthermore, projections indicate an annual growth rate of 18 percent, potentially reaching $179 billion by 2026. Major players in this arena include Saudi Arabia, Iran, Turkey, UAE, Malaysia, and Indonesia. Notably, Indonesia leads in the number of Islamic fintech firms.
Digital evolution and promising areas
Promising areas for the sector’s digital evolution include crowdfunding, investment platforms, and robo-advisors. The report identifies a focus on payment services, digital banks, smart contracts, as well as blockchain technology, and cryptocurrencies. Additionally, the report highlights the significance of financial sector information security and insurtech.
Taking a closer look
Asia emerges as a significant player, hosting 42 of the top 100 Islamic banks globally. It accounts for 29 percent of their total assets. This emphasizes the dynamic and diversified nature of the Islamic banking landscape across different regions.
Meanwhile, Saudi Arabia’s Al-Rajhi Bank claims the title of the leading Islamic bank globally. It showcases the Kingdom’s influence and strength in the Islamic banking sector.
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Driving factors: demand and supply
The increasing demand for Islamic banking services is fueled by multiple factors. The growth of the Muslim population, digitization of the Islamic economy, and a rising global demand for halal products are among the most influential factors. On the supply side, the expansion of Islamic banking is shaped by national strategies. and government regulations. Another major factor is the enhanced trade activities within the Organization of Islamic Cooperation.
Collectively, these elements contribute to the growth and diversification of Islamic banking services. They affirm its significance in the ever-evolving global financial landscape. As the sector continues to expand, it is poised to play a crucial role in shaping the future of the financial industry.
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