Islamic Finance: A Global Perspective Beyond Muslim-Majority Nations

Islamic finance, valued at $3.9 trillion, extends across more than 80 countries. However, a significant portion of this market is concentrated in a few key regions. Ten countries dominate, holding nearly 95% of the world’s Sharia-compliant assets. Saudi Arabia and Iran lead with substantial market shares, followed by Malaysia, the UAE, and others. This article explores the reach of Islamic finance beyond its traditional markets and its growing influence worldwide.

Islamic Finance: A Global Overview

Islamic finance is based on Sharia principles, including the prohibition of interest (riba). Instead of earning money through interest, Islamic banks invest in assets such as real estate and vehicles, profiting from the sale or lease of these assets. This approach ensures that the system is both ethical and resilient. Despite its $3.9 trillion valuation, Islamic finance is heavily concentrated in a few countries, with Saudi Arabia and Iran leading the way, each holding a significant portion of the market.

Islamic Finance in the Middle East and North Africa

The Middle East and North Africa (MENA) region is the core of Islamic finance due to its Muslim-majority populations and oil wealth. The MENA region houses over 190 Islamic banks, with the Gulf Cooperation Council (GCC) countries dominating the sector. Saudi Arabia, Kuwait, and Qatar are key players, while countries like Morocco and Egypt are making strides in developing their Islamic finance markets.

Islamic Finance in Asia-Pacific

The Asia-Pacific region accounts for almost 25% of the global Islamic finance market. Malaysia stands out with Sharia-compliant institutions making up nearly one-quarter of its financial sector. The region also includes mature markets like Bangladesh, Brunei, and Pakistan. Indonesia, despite its large Muslim population, is still developing its Islamic finance sector. Recent efforts are focused on leveraging Malaysian expertise to enhance the industry.

Islamic Finance in Africa

In Sub-Saharan Africa, Islamic finance is just beginning to gain traction. The continent faces challenges such as vast territories and underdeveloped financial education. However, countries like Egypt, Sudan, and Morocco are leading the way in introducing Sharia-compliant finance. Islamic finance in Africa is mainly driven by sovereign bonds and private investments, with a focus on raising development funds and diversifying investor bases.

Islamic Finance in Europe

Following the 2008 financial crisis, Islamic finance emerged as a stable alternative in Europe. London is a significant hub for Sharia-compliant finance, with several licensed Islamic banks and conventional banks offering Islamic products. Other European countries, including Luxembourg, Germany, and Switzerland, have also embraced Islamic finance. France, with its large Muslim population, shows potential despite some challenges in market adoption.

Islamic Finance in the Americas

In the Americas, Islamic finance remains a niche market. While some U.S. banks offer Sharia-compliant products, these offerings are limited. South America has seen limited development, with Mexico starting to explore Islamic finance and Surinam welcoming Trustbank Amanah as the continent’s first Islamic bank.

Islamic finance is expanding beyond its traditional markets, showing growth and influence across various regions. From the Middle East to Asia-Pacific, and into Africa and Europe, Islamic finance is establishing itself as a significant global player. As more countries explore Sharia-compliant financial options, the sector’s global footprint is expected to continue growing.