Financial institutions are looking to the new markets of south-east Asia and Africa as the Islamic finance industry evolves. 

This year’s Top Islamic Financial Institutions report exposes a number of changes in the industry. First, while overall growth is continuing at a strong clip, it is nevertheless beginning to descend from the dizzying heights of previous years. So while the asset and profit growth of sharia-compliant financial institutions still outperforms conventional peers, a slow process of convergence is now under way.

Moreover, although the data in the 2015 report is somewhat skewed as a result of the devaluation of Iran’s rial against the US dollar, it shows many of the industry’s dominant markets, including Malaysia and jurisdictions in the Gulf Co-operation Council, are gradually approaching saturation point.

As a result, most of the largest financial institutions are now spreading their wings in the hunt for higher returns. The burgeoning markets of east and west Africa, as well as Indonesia, appear to offer the best prospects. Looking ahead, the competition for market share in these jurisdictions could deliver tangible social and economic benefits.

For one, much of Indonesia and sub-Saharan Africa are currently underserved by financial institutions. The presence of Islamic lenders offering a diverse range of financial products, both to consumers and small businesses, will have positive implications for regional financial inclusion. Encouragingly, a number of governments both in south-east Asia and Africa are now opening their doors to the industry through new and improved regulations.

This more welcoming regulatory environment is expected to pave the way for sukuk transactions to finance much-needed infrastructure developments. Meanwhile, opening up these markets – which have been described as sleeping giants – to Islamic finance will provide the industry with depth. In all, despite a gradual march towards maturation, the future is still bright for Islamic finance.

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