Hit by cooling commodity prices and slower growth in key markets, the Islamic finance industry is being tested like never before. But as The Banker’s Top Islamic Financial Institutions 2016 ranking makes clear, the world’s leading sharia-compliant institutions are in good health. Prudent growth strategies, backed by a decade of stellar profits, have put most in a position to weather the changing economic climate. But if the past decade was defined by increases to key performance indicators, then the next will be notable for different reasons. This is because the industry is beginning to emerge as the standard bearer of ethical finance.
The financial crisis not only diminished confidence in conventional financial institutions, but sparked a search for more sustainable alternatives. Today, the spotlight is firmly on sharia-compliant institutions. With its emphasis on sustainable investments in the real economy, and its rejection of debt, speculation and interest, the Islamic finance industry makes for a compelling case. Indeed, industry thought leaders have long argued exactly this point: that sharia-compliant finance should be labelled simply as ‘ethical finance’, outside the conventional boom-and-bust cycle.
Today, non-Muslim customers are turning in greater number to Islamic financial institutions for their banking needs. But to develop meaningful scale, the industry must tap into the growing pool of ethical investment funds that lies beyond the Islamic world. This will require a dedicated effort on the part of the industry to align itself more closely with secular ethical financial branding and concepts.
The early signs are encouraging. There is already talk about the role Islamic finance can play in supporting the UN’s Sustainable Development Goals. The use of Islamic finance by multilateral institution is on the rise, while the sukuk market is seen as a natural fit for Africa’s infrastructure funding gap in the coming years. The next decade is likely to be another transformative one for Islamic finance, but for very different, and positive, reasons.
