With 1.9 billion Muslims in the world, Islamic finance and banking holds incredible potential. Southeast Asia is home to approximately 275 million Muslims. Indonesia, Malaysia, and Brunei are Muslim-majority countries. That means there’s a huge opportunity for institutions of Islamic finance to flourish in the region. This includes applications in fintech and digital banking too.
However, at the moment, it is the United Kingdom that is home to the most sharia fintech firms, with 27 companies. Malaysia follows 19 firms, and then the United Arab Emirates with 15 fintech providers. Indonesia, which has the largest Muslim population in the world, only had ten fintech companies that are fully sharia-compliant in February 2021.
Islamic finance adheres to Islamic law, which is based on a set of ethical codes aligned with principles of public good. The system prohibits a number of activities—charging interest in any transactions including investments and lending, drawing income from speculation and chance, as well as participating in contracts with excessive risk. Moreover, funds deposited into Islamic financial institutions must not be used to support certain industries that are considered sinful, such as alcoholic beverages, gambling, and anything related to pornography.
To unpack the real opportunities within Islamic banking, Mambu, a Berlin-headquartered SaaS cloud banking platform that serves Islamic banks and lenders, released a report titled “Faith and finance: The changing face of Islamic banking.” The research process involved polls with 2,000 Gen Z and Millennial Muslims around the world. Here are five key points from the report.
#1: Islamic finance is a multitrillion-dollar industry driven by fintech
Islamic finance is estimated to be valued at USD 2 trillion and is expected to reach USD 3.8 trillion by 2023. The surge is in large part due to the widespread usage of sharia fintech, which is projected to reach the USD 125 billion mark by 2025.
#2 Millennial and Gen Z Muslims are willing to adopt Islamic banking
In all, 53% of respondents said that they would use Islamic banking services if the features were more accessible. Also, 32% said they don’t have access to banks that adhere to their religious principles. Meanwhile, 24% stated that they “need more” from their current banks, and 23% doubt that banks can be fully sharia-compliant.
#3 Ethical investment is crucial
The report said 74% of respondents consider it important that their bank use their funds for ethical investments. They do not want their banks to issue loans to tobacco companies (62%), the gambling industry (69%), and alcohol companies (67%)
#4 The future is digital
By embracing a mobile-first lifestyle, 70% of respondents said it is important to have the capability to make investments without meeting an advisor in person, and 74% said that a mobile banking app is essential. Delving deeper into their view of digital services, 78% of respondents feel online banking options are critical, and 76% said the absence of such services is a deal-breaker.
#5 A mix of portfolio products is acceptable
Only 47% of respondents said they think it is important for their bank to be fully sharia-compliant. In addition, 32% claim they cannot easily access banks that adhere solely to Islamic principles. With that said, the respondents said a mix of Islamic financial products and other instruments would be an acceptable condition.