The third installment of a Global Finance FAQ web series on Islamic finance.
Islamic finance is today a $3.9 trillion industry spread over more than 80 countries with the bulk of it concentrated in very few markets. Comparing data from different sources shows that just 10 countries account for almost 95% of the world’s sharia compliant assets. Saudi Arabia and Iran lead the way with 25% to 30% market share each, followed by Malaysia (12%), the UAE (10%), Kuwait and Qatar (5.5%), Türkiye and Bahrain (3.5%), Indonesia and Pakistan (2%).
These countries drive the growth of Islamic finance, set industry standards and foster innovation. Over the past decade, Islamic finance grew at an exponential yearly pace of around 10%. According to the 2023State of Global Islamic Economy report, total sharia-compliant assets will grow to $5.95 trillion by 2026 although that depends on the economic well-being of these 10 markets.
Islamic Finance in Middle East and North Africa
Islamic finance’s primary sphere of influence is of course the Arab world thanks to its Muslim-majority populations and abundance of petrodollars. The Middle East and North Africa (MENA, which excludes Iran) are home to over 190 Islamic banks.
The share of Islamic banking from total banking assets varies among Arab countries, with Sudan recording the highest share at 100%, followed by Saudi Arabia at 74.9%, Kuwait at 51%, Qatar at 28.6%, Djibouti at 25.0%, the UAE at 22.7%, Jordan at 17.8%, Palestine at 17.4%, Oman at 16.6%, and Bahrain at 16.1%.
The Gulf Cooperation Council (GCC) dominates the world of Islamic finance with over 97% of the top 50 Arab Islamic banks’ assets (see table below).
Top 50 Arab Islamic Banks by Country
| Country | # of Islamic Banks | Total Assets ($ Bil.) |
|---|---|---|
| Iraq | 15 | 6.2 |
| Bahrain | 7 | 62.8 |
| Qatar | 5 | 142.2 |
| Saudi Arabia | 4 | 322.2 |
| UAE | 4 | 146.2 |
| Palestine | 2 | 2.0 |
| Syria | 3 | 1.8 |
| Kuwait | 2 | 132.4 |
| Yemen | 2 | 1.1 |
| Jordan | 2 | 11.6 |
| Egypt | 1 | 6.1 |
| Oman | 1 | 3.8 |
| Tunisia | 1 | 1.7 |
| Sudan | 1 | 484.0 |
The region’s 15 largest Islamic banks are all GCC-based and accounted for nearly $770 billion assets in 2022. These banks sometimes branch out abroad—Bahrain’s Bank al Baraka for instance has offices in more than 15 countries. A milestone for the region was the finalization Kuwait Finance House’s acquisition of Bahrain’s Ahli United late 2022. The $8.8 billion created the second largest Islamic bank in the world with over $120 billion combined assets (see table below).
Top 15 Islamic Banks in MENA
| Bank | Country | Total Assets 2021 ($ Bil.) | Total Assets 2022 ($ Bil.) |
|---|---|---|---|
| Al Rajhi bank | Saudi Arabia | 166.3 | 203.3 |
| Kuwait Finance house | Kuwait | 72.0 | 120.7 |
| Dubai Islamic Bank | UAE | 75.9 | 78.4 |
| Alinma Bank | Saudi Arabia | 46.2 | 53.4 |
| Qatar Islamic Bank | Qatar | 53.2 | 50.5 |
| Masraf al Rayan | Qatar | 47.8 | 46 |
| Abu Dhabi Islamic Bank | UAE | 37.2 | 45.8 |
| Bank Albilad | Saudi Arabia | 29.5 | 34.5 |
| Bank Aljazira | Saudi Arabia | 27.4 | 30.8 |
| Dukhan Bank | Qatar | 30.2 | 28.7 |
| Al Baraka Banking grp | Bahrain | 27.7 | 24.9 |
| Sharjah Islamic bank | UAE | 14.9 | 16 |
| Qatar International Islamic bank | Qatar | 16.9 | 15.4 |
| Kuwait International bank | Kuwait | 10.3 | 11.6 |
| Al Salam bank | Bahrain | 7.1 | 10.3 |
Up until recently, North African countries considered Islamic finance to be an unwelcome interference from Gulf states. Islamic banks and financial products were outlawed or strictly monitored.
Morocco allowed it last. In 2017, the regulator, Bank Al-Maghrib, allowed five Islamic banks to start operating in the kingdom. The country also issued its first Islamic bond or sukuk in 2018. By 2022, “participatory finance” as it is called there was worth $2.7 billion. Sharia-compliant lenders represented only 2% of the local banking market but their assets grew 20% year over year, a much higher growth rate than that of conventional banks.
That same year, Islamic lenders had a 5.1% market share in Tunisia and 2.4% in Algeria where Islamic banks already existed. Governments are currently working on legal frameworks to introduce sukuks and pushing for conventional banks to develop and commercialize sharia-compliant products.
Egypt, North Africa’s biggest market issued its first Islamic bond in 2023. Sharia-compliant finance grew 22% between 2022 and 2023 and represents about 4% of the local banking sector according to the Egyptian Islamic Finance Association.
If MENA represents Islamic finance’s past, the Asia-Pacific region—where the majority of the world’s more than 1 billion Muslims live—may represent its future.
Islamic Finance in Asia-Pacific
Today, the Asian-Pacific region represents almost 25% of the global Islamic finance market. In Malaysia, sharia-compliant institutions account for close to one-quarter of the financial sector. Kuala Lumpur is one of the main drivers of the global sukuk market and weighs in on international compliance with the Islamic Financial Services Board, one of the world’s two major Islamic finance regulatory bodies.
Other mature Asian Islamic finance markets include Bangladesh, Brunei and Pakistan where sharia-compliant assets make up more than 15% of total bank assets.
Surprisingly, Islamic finance is still in its infancy in Indonesia even though its population is 90% Muslim. In 2023, sharia-compliant lenders accounted for only about 8% market share. In recent years, the authorities began to see the potential of Islamic finance and developed a roadmap to develop the sector with the help of Malaysian expertise that led to the consolidation of three entities to create of Bank Syariah, one of world’s ten biggest Islamic lenders. The country is also a pioneer for greenIslamic bonds.
| Islamic Finance FAQ |
|---|
| •What Is Islamic Finance And How Does It Work? |
| •How Does Islamic Finance Make Money Without Interest? |
| •Is Islamic Finance Only For Muslim-Majority Nations? |
| •Is Islamic Finance New Or Old? |
| •Who Makes Rules For Islamic Finance? |
In one of its latest reports, Fitch Ratings says it “expects the Indonesian sharia banks to benefit from a supportive regulatory environment that could promote more industry consolidation and improve sector competitiveness.”
Islamic Finance in Africa
Further West, Australia raised hopes of being the next market to open up to Islamic finance but after the first sharia compliant lender obtained its license in 2022, it asked for it to be removed in 2024 for lack of capital. The Philippines also expressed interest in opening up to Islamic finance.
In other parts of the world such as Sub-Saharan Africa, Islamic finance is just beginning to take off. In March 2024, Uganda opened licensed its first sharia-compliant bank, a branch of the Djibouti-based Salaam Group.
The nature of the African market—huge territories, little financial education, lack of regulatory frameworks—makes it challenging for Islamic banks to establish a presence in most Sub–Saharan countries. Ifsharia-complaint finance is to develop on the African continent, chances are will be led by banks from Egypt, Sudan and Morocco.
At this stage, Islamic finance in Africa tends to spread through private or sovereign bonds rather than brick-and-mortar banking. African governments see Islamic finance as a tool to raise development funds on international markets and diversify their pool of investors but so far, the results have been limited.
“We expect the top three sukuk issuers in Africa—South Africa, Egypt, and Nigeria—will continue to play a role in Islamic finance. Rated African sovereigns’ sukuk issuance amounts to almost $4.3 billion and has accounted for more than two-thirds of Africa’s total issuance of $6.6 billion since 2014” reports S&P in its 2024 assessment. However, “the complexities of sukuk and changes to sharia standards continue to intimidate African sovereign and slow adoption rates.”
Islamic Finance in Europe
In the aftermath of the 2008 crisis, Islamic finance appeared as a relatively safe alternative to the teetering Western banking system.Sukuks seemed like a good way to tap into new markets, Islamic funds represented opportunities to access large amounts of liquidity and Islamic banking was a way of monetizing local Muslim communities.
London positioned itself to become the hub for sharia-compliant finance in the Western world. Today, the UK boasts five licensed Islamic banks, over 20 conventional banks offering Islamic financial products.
Other European countries where Islamic finance made a remarkable start include:
- Luxembourg, the first Eurozone country to issue a sovereign sukuk and where about 30 sharia-compliant funds are domiciliated.
- Germany issued several sukuks in the past and licensed its first full-fledged Islamic bank (KY bank AG) in 2015.
- Switzerland with more focus on Islamic insurance or takaful.
France—which has the largest Muslim population in Europe—is also a promising market. Authorities (including France’s former minister of finance and IMF director Christine Lagarde) have pushed hard for the development of Islamic finance there, yet banks have largely failed to respond due to fears that being associated with Islam at a time when the country is targeted by terrorist attacks would damage their reputation. French investment banks however offer sharia-compliant products and services to cater to the needs of wealthy foreign clients.
Russia has also started offering Islamic finance products through fintechs like Payzakat, or traditional banks. The idea is both to cater to its Muslim population and help its banks scale into MENA markets, like Sberbank the leading Russian lender who set up in Abu Dhabi in 2020.
Islamic Finance in the Americas
Elsewhere in the world, some US banks have started offering sharia-compliant products but such offerings remain a very small niche. South America is the last continent where Islamic finance is taking root. Mexico is starting to think about it. In December 2017, Trustbank Amanah, the continent’s first Islamic bank, bank opened in Surinam.
