The Islamic finance industry has grown rapidly at an annual rate of 11.7% over the last 10 years, with an increasing global presence1. As a result, The industry has emerged as an effective tool for financial development, addressing financial challenges, and boosting shared prosperity worldwide. With instruments that adhere to Islamic principles (Shariah laws), the industry promotes inclusive growth, and equitable risk-sharing connects the financial sector with the real economy and emphasizes financial inclusion and social welfare. Globally, there are over 1,600+ Islamic financial institutions comprising bank and non-bank financial institutions, capital markets, money markets, and insurance (Takaful). In many Muslim-majority countries, Islamic banking assets have grown faster than conventional ones. According to the Islamic Finance Development Indicator Report 2022, the Islamic finance assets market reached US$3.9 trillion in 2021, with a growth of 17%, up from 14% in 2020, and is projected to reach US$5.9 trillion by 2026. In terms of geographic representation, Iran (US$1.2 trillion) has the highest Islamic finance assets, followed by Saudi Arabia (US$896 billion), Malaysia (US$650 billion), the UAE (US$252 billion), and Qatar (US$186 billion) in 2021. Also, the global net income reported by Islamic financial institutions in 2021 rose from US$10.5 billion in 2020 to US$32 billion in 2021, signalling an improved growth trajectory, especially for Islamic banks2.

In recent years, with growing digitization and the inevitable role of advanced technologies, the growth trend has been further augmented by Islamic fintech organizations, especially in the Organization of Islamic Cooperation (OIC) member countries. Although the COVID-19 pandemic negatively affected the traditional and Islamic segments of the global financial industry, Islamic fintech has continued its steady development. Due to the pandemic, the increasing transition towards technology benefitted the Islamic finance industry as several financial institutions offer products via digital platforms3. For instance, in June 2022, Oman-based Ahli Islamic Bank launched IslamiNET, an online portal to support corporate banking requirements4. By December 2021, the global Islamic fintech sector comprised 250+ companies, spanning OIC and non-OIC countries and covering various customers and their growing financial needs via several emerging technologies5. Although Southeast Asia and the Gulf region constitute the largest Islamic financial markets and most developed jurisdictions, the UK is leading the Islamic fintech jurisdiction, underlined by the Bank of England’s recent development of a liquidity tool for Shariah-compliant banks6.

“Islamic Fintech has much potential to expand further in the region. QFC will support the Islamic financial hub and will work cooperatively with Qatar Fintech Hub so that they can extend support to Islamic Fintech startups.” – Henk Jan Hoogendoorn, Chief Financial Sector Officer of Qatar Financial Centre

Among the GCC countries, Qatar is expected to emerge as a growing fintech hub due to the consolidation initiative of Islamic banks (merger of Shariah-principled Barwa Bank and IBQ to form Dukhan Bank in 2019, and the merger of Masraf Al Rayan and Al Khaliji in 2021) to increase their capitalization, development of angel investor community, ample capital funding, and skilled talent pool among others7. According to the Global Islamic Fintech Report 2021, Qatar’s Islamic fintech market was valued at US$849 million in 2020 and is estimated to grow at a compound annual growth rate of 19.6% to reach US$2.1 billion by 2025. It has ranked 10th in the Global Islamic Fintech (GIFT) Index with the country’s fast-maturing ecosystem. To further amplify the trend, Qatar Financial Centre (QFC) and Qatar Fintech Hub (QFTH) are supporting Islamic fintech firms to gain access to Qatar’s burgeoning market through several initiatives that will support Qatar’s vision to become an Islamic finance hub8. Also, the pre-existing relationships between Qatari and Islamic financial institutions abroad, along with branch networks of Qatari banks that have invested overseas, will likely facilitate the global distribution of Islamic fintech by leveraging their large customer networks9.

Furthermore, through the National Vision 2030 and the National Fintech Strategy, Qatar provides a framework for initiatives that constitute an attractive ecosystem for local startups and international fintech firms to set up bases in the country. This framework includes incentives during their first year, waiver of applications and first-year registration fees, and rent-free workspaces10. Moreover, the rise of global fintech hubs has brought accelerators and incubators to the fore, making QFTH well-positioned to support the local market and expand local and international fintech. Together, these factors will enable the scalability of Islamic fintech solutions out of Qatar.

In Qatar, the Islamic or Shariah-compliant fintech sector is geared for significant expansion over the coming years. Peer-to-peer (P2P)/crowdfunding and challenger banking are some of the top expected growth sectors for Islamic fintech. In addition, with a global focus on blockchain/crypto, robo-advisory/personal finance management, lending activities, alternative investments, and ESG, Islamic fintech organizations have the necessary framework and impetus to improve the sector’s global footprint and market share11.

References:

1. Hammond, Susannah (2022) The ESG potenttial of Islamic finance | Reuters. Available at: https://www.thomsonreuters.com/en-us/posts/news-and-media/islamic-finance-esg/

2. Islamic Finance Development Indicator Report 2022 (2022). Available at: https://icd-ps.org/uploads/files/ICD%20Refinitiv%20ifdi-report-20221669878247_1321.pdf.

3. The Growing Global Appeal of Islamic Finance (2021) BNY Mellon. Available at: https://www.bnymellon.com/us/en/insights/all-insights/the-growing-global-appeal-of-islamic-finance.html

4. Ahli islamic launches “IslamiNET” it’s new-age digital platform for Corporates (2022) Zawya. Available at: https://www.zawya.com/en/press-release/companies-news/ahli-islamic-launches-islaminet-its-new-age-digital-platform-for-corporates-oxzdfuxp

5. The global Islamic fintech banking market: trends and outlook (2022) Consultancy-me.com. Available at: https://www.consultancy-me.com/news/4595/the-global-islamic-fintech-banking-market-trends-and-outlook

6. Kelly, J. (no date) Islamic fintech firm becomes first to get UK regulatory approval | Reuters. Available at: https://www.reuters.com/article/uk-britain-islamic-fintech-idUKKBN17C0FM

7. Perumal V. Santosh (2021) Consolidation initiative of Islamic banks in Qatar likely to increase their capitalisation and funding capacity, say experts - Gulf Times, Gulf Times. Available at: https://www.gulf-times.com/story/687202/Consolidation-initiative-of-Islamic-banks-in-Qatar-likely-to-increase-their-capitalisation-and-funding-capacity-say-experts

8. AlSharif, F. (2021) Qatar’s Islamic fintech market to drastically grow by 2025 - Doha News | Qatar, Doha News. Available at: https://dohanews.co/qatars-islamic-fintech-market-to-drastically-grow-by-2025/

9. Perumal V. Santosh (2021) Consolidation initiative of Islamic banks in Qatar likely to increase their capitalisation and funding capacity, say experts - Gulf Times, Gulf Times. Available at: https://www.gulf-times.com/story/687202/Consolidation-initiative-of-Islamic-banks-in-Qatar-likely-to-increase-their-capitalisation-and-funding-capacity-say-experts

10. AlSharif, F. (2021) Qatar’s Islamic fintech market to drastically grow by 2025 - Doha News | Qatar, Doha News. Available at: https://dohanews.co/qatars-islamic-fintech-market-to-drastically-grow-by-2025/

11. THE GLOBAL ISLAMIC FINTECH REPORT (2019). Available at: https://ceif.iba.edu.pk/pdf/IslamicFinTechReport19.pdf