Islamic banking system making remarkable headway.

Byline: NAZIR AHMED SHAIKH

The Islamic finance industry has seen exceptional growth in the last 30 years. Many optimistic predictions have been made regarding the enormous potential for future development. There has been continuous expansion of total Islamic finance assets as well as a sophistication of products, together with an ever-growing number of countries, companies, and institutions participating in the industry.

In 2019, the total assets value of global Islamic finance markets amounted to about 2.88 trillion US dollars. The projected total asset value for the global Islamic finance markets will amount to 3.69 trillion US dollars by 2024.

The pace of growth of Islamic finance is a bold one (at about 15-20% growth per year), much higher than conventional finance, but it is not sufficient to replace conventional finance. It is striking that the industry does not progress at a rhythm of 40-50% per year or more, given its novelty and supposed appeal to 1.6 billion Muslims worldwide.

But what exactly Islamic banking is? Often the term 'Shariah-compliant' is used to denote the ethical and transparent standards demanded of classifying the products and services offered as Islamic. Interest in its all forms is strictly prohibited (Haram) in Islam Islamic banking is interest-free (Riba-free), assets-based, and ethically driven at its core and has many similarities with other religions. On the other hand, commercial banks are interest-based and don't have many rules about which industries they support or invest in. Islamic banking promotes an asset-based relationship, extending beyond the typical 'credit check' and into advising and evaluating the fit for the customer. This may mean stringent or better standards than traditional financing models, which has generally led to the lengthier processing of Islamic finance applications.

In Islamic finance, money is a liquid instrument meant as the medium of exchange rather than the commodity itself. The real difference to commercial banking comes in the form of how a customer is viewed. In this sense, it's more holistic and partnership-based rather than judging someone's creditworthiness. However, the advent of financial technology (fintech) has revolutionized this aspect of the financial services value chain. At the same time, an increase in customers demanding to know how and where their money is being used or invested has resulted in an explosion of demand for Islamic fintech products and...