Top 500 Islamic Financial Institutions: Methodology

The Banker’s Top 500 Islamic Financial Institutions listing assesses the current state of Islamic banking and finance market across the world. Since its inception in 2007, the Top 500 is regarded as one of the most credible mechanisms for estimating the size and growth-rate of the Islamic financial industry. During each year of the survey, the market has experienced changes that can be associated with an industry in transition. The methodology employed in the Top 500 strives to adapt to market changes while simultaneously maintaining our fundamental approach and preserving the statistical integrity readers expect from The Banker and Maris Strategies.

Our methodology begins with contacting central banks and government financial supervisory agencies to identify institutions offering sharia-compliant financial services. In countries where the central banks and government agencies do not categorise the Islamic financial institutions and report those institutions’ details separately, institutions offering sharia-compliant financial services are identified through a number of public and private agencies providing accounting and auditing services for the Islamic financial institutions.

Information collation

Once a comprehensive list is compiled, financial information on the listed institutions was collected, consolidated and confirmed. Institutions providing sharia-compliant financial services from basic bank accounts to insurance products are contacted to request their latest financial data. Many responded with their annual reports and latest financial statements. However, an equal number did not supply us the necessary information for the listing, which is reflected on the listing as not available ('n/a').

This indicates that the industry is still at its early stage and more transparency in financial reporting is needed. However, we have elected to include them on this list to illustrate the diversity of the market. Efforts were made to update the listing and maintain the level of consistency of our financial details. Wherever possible, the collected data has been verified from multiple sources and all the financial information of the listed institutions have been updated to the best of our knowledge. Financial details before 2007 have been dropped to ensure the fair representation of the ranking.

To minimise the effect of currency rate fluctuation when comparing the institutions, annualised foreign currency rates from the International Monetary Fund Yearbook were used when converting local currencies to the US dollar and percentage change has been calculated from reported currencies before conversion into US dollars. Also, the basis for percentage change calculation has been the figures reported in the previous ranking in order to illustrate the dynamics of the newly emerging industry.

Problems faced

One inherent problem with developing a topology of an emerging industry is the lack of a formalised structure that will allow comparing the underlying value of institutions and their relative contribution to the industry. Financial institutions such as commercial banks and other institutions of similar structure provide basic mechanisms for comparisons such as assets, profits and paid-up capital.

Institutions such as investment banks, insurance companies and other organisations engaged in financial services present a problem for inclusion into an industry benchmark based on deposit-taking because the use of a measurement such as sharia-compliant assets does not accurately reflect the business activity or the overall contribution they make to the industry as a whole. Therefore, we acknowledge that including these types of institutions with their full-service banking counterparts is akin to comparing apples to oranges. However, at this early stage of the industry for codification purposes they are included (perhaps unfairly represented in value) to illustrate the totality and variety of the market, simply for the purpose of depicting the entire market – they may be apples and oranges, but they are also both fruit.

In this sense, we regard the latest sharia-compliant assets published by the institutions as the primary index in compiling the Top 500 listing. Even though we are fully aware of the shortcomings – ie, that applying sharia-compliant assets as the sole guiding principle could undermine our understanding of the contribution made by the non-banking institutions – we believe this is the best available approach in illustrating the entirety of the market at this early stage. Our intent in the forthcoming years is to work with investment banks and insurance companies to develop a descriptive measure to reflect the role they play and value they generate in the market.

As the benchmark continues to evolve along with the Islamic financial industry, there is evidently a need for greater clarity in quantitative and qualitative reporting of sharia activities by banks, financial institutions and central banks. There are continuous efforts to improve the quality of data reported by institutions offering sharia-compliant financial products and services. The Top 500 ranking assists in the facilitation of the industry’s discussion of a uniformed reporting scheme and a higher degree of clarity in institutional data reporting.

Dr CD ‘Jay’ Jung is a senior researcher at Maris Strategies specialising in African and Middle East economics.