The digitalisation of Islamic Finance will accelerate as spending surges

By Puja Sharma

Islamic financing emerged 50 years ago to meet the requirements of Shariah and Islamic principles. Despite the global financial crisis, their financial assets grew to $2.88 trillion in 2019, the fastest growth since 2009. By 2024, this is expected to reach $3.69 trillion, according to a report.

Professionals believe digitalisation will speed up the adoption of Open Banking and Islamic finance. New research with leading Islamic finance professionals is predicting a dramatic increase in the digitalisation of the sector as spending on technology and new digital financial services surges.

The research was conducted by IslamicMarkets.com, a platform that provides access to expert knowledge and financial opportunities, to support the Global Islamic Finance Forum 2022 (GIFF2022), 5-6 October in Kuala Lumpur.

The event themed ‘Take the Reins’, is organised by the Association of Islamic Banking and Financial Institutions Malaysia (AIBIM), in support of the Malaysia International Islamic Financial Centre (MIFC), and aims to generate an active discourse on the work required to strengthen Islamic finance’s global leadership.

In countries with large Muslim populations, financing emerged 50 years ago to meet the requirements of Shariah and Islamic principles. Despite the global financial crisis, Islamic finance assets grew to $2.88 trillion in 2019, the fastest growth since 2009. By 2024, this is expected to reach $3.69 trillion, as reported by Bny Mellon.

The popularity of Shariah financing is partly due to its increasing appeal among non-Muslim countries as well, as Muslim countries have turned to it for capital. The digitalisation of Islamic finance products and services has been accelerated by these new breeds of tech enablers, making them more accessible to investors globally and reinventing the client experience.

The study found more than half (57%) of Islamic finance professionals expect a dramatic increase in digitalisation over the next three years with another 40% predicting a slight increase. There is a prediction of increased spending and investment by Islamic finance institutions in technology and building new digital financial services over the next five years, with 50% of Islamic individuals forecasting a dramatic rise and 41% a slight rise. Just 5% predict spending on technology and new digital financial services will stay the same or fall over the next five years.

Greater digitalisation is central to the growth of open banking, open finance, and embedded finance, the study found, with 88% of Islamic finance professionals questioned saying adoption will accelerate as a result of increased digitalisation.

GIFF2022 Chairman Arsalaan Ahmed said,“Digitalisation is on the march in the Islamic finance sector and the research reflects the impact of increased spending on technology and new digital financial services. Increased digitalisation is central to the adoption of open banking, open finance, and embedded finance in Islamic finance and our study shows professionals in the sector are expecting rapid expansion.”

By 2024, Islamic finance is expected to reach $3.69 trillion worldwide. Fund manager Ocorian reports that capital-rich investors from the GCC region are most likely to choose the US over Malaysia as their destination. Reports claim that both Muslim and non-Muslim countries are becoming increasingly interested in Shariah-compliant capital, which is expected to reach $3.69 trillion by 2024. The report also found that Islamic finance assets grew globally by 7.8% between 2014 and 2019.