The global Islamic finance industry according to S&P Global Ratings is expected to grow by around 10 percent in 2023-24 despite the economic slowdown, after posting a similar expansion in 2022 mainly led by the GCC countries.
Experts analyzed that the sector continued to enlarge in 2022, with assets up by 9.4 percent compared with 12.2 percent in 2021, supported by growth in banking assets and the Sukuk industry. GCC countries, mostly Saudi Arabia and Kuwait, spurred 92 percent of the growth in Islamic banking assets the previous year.
In Saudi Arabia, the biggest Arab economy, the implementation of its ambitious diversification strategy, Vision 2030, and continued growth in mortgage lending supported the industry’s growth. However, in other parts of the world, the Islamic finance industry’s growth was either muted or held back by local currency depreciation. Various investigations revealed that Islamic finance with the increased use of technology in finance has attained and integrated financial technology (Fintech) to offer its consumers additional accessible and efficient financial services. For the Islamic finance industry, the rise of Fintech has created the latest difficulties and new possibilities, offering creative solutions to old financial challenges while also raising new ethical and regulatory concerns.
In recent years everyone knows that Islamic finance has grown in popularity due to its commitment to Shariah values and principles. One of the benefits of combining Fintech with Islamic finance is the possibility of raised financial inclusion, which permits extra individuals and enterprises to access Shariah-compliant financial goods and services.
Experts recorded that Fintech can also raise the competence and transparency of Islamic financial transactions, lowering costs and broadening access. There are however, various drawbacks to combining technology with Islamic financing. One possible drawback is the prospect of financial exclusion, as those with no access to or knowledge of technology may be left behind. There is also the issue of ensuring that Fintech platforms follow Shariah principles which may be complicated and need rigorous monitoring.
There are furthermore, questions regarding the ethical implications of Fintech like the use of artificial intelligence in decision-making and the possibility of bias in algorithms. Subsequently, the convergence of Islamic finance and technology provides many advantages but also creates challenges that must be handled by careful analysis and regulation.
Of the Finance industry researchers also revealed that Fintech and Islamic banking systems are two progressive and rapidly enlarging sectors. Fintech to deliver financial services and improve the overall client experience; is the term utilized to explain the use of technology.
Contrarily, Islamic banking is a kind of banking that complies with Islamic law, which forbids the charging of interest on loans and investments in specific sectors like the gambling and alcohol industries. No doubt, Islamic banking systems and Fintech are superior to conventional banks in a number of ways. Fintech businesses leverage technology to deliver financial services that are quicker, easier, and more customized while charging less. Customers who cherish these values may be drawn to Islamic banking systems’ emphasis on ethical and socially conscious investing.
According to experts, Pakistan is ranked 145 out of 150 in terms of implementation of the Islamic financial system. Not a single Muslim country in the world ranks in the top 30 in terms of implementation of the Islamic financial system. Malaysia is at number 33 and Pakistan is at number 145. Non-Muslim countries, especially Scandinavian countries are at the top in terms of the implementation of the Islamic financial system.
According to the State Bank of Pakistan (SBP), financing & related assets (net) of IBI rose by Rs 24 billion during the period under review and reached Rs 2,985 billion by the end of September 2022. The YoY growth of financing of IBI was registered at 31.7 percent by the end of September 2022.
The breakup of financing and related assets (net) among IBs and IBBs divulges that financing & related assets (net) of IBs experienced a quarterly rise of Rs 33 billion to reach Rs 1,527 billion by the end of September 2022.
However, financing and related assets (net) of IBBs declined by Rs 9 billion and were registered at Rs 1,458 billion by the end of September 2022. It is important to mention that the growth of the financing portfolio of IBI remained impressive during the last few years.
Consequently, the market share of financing of IBI in advances of the overall banking industry rose to 27 percent by the end of September 2022 as against to 24.7 percent by the end of September 2021. The mode-wise break-up of financing divulges that the share of Diminishing Musharaka (35.2 percent) continued highest in the overall financing of IBI, followed by Musharaka (22.9 percent) and Murabaha (15.7 percent) by the end of September 2022. In terms of sector-wise break-up of financing, textile (16.4 percent), agribusiness (13.6 percent) and production & transmission of energy (10.9 percent) remained the three dominant sectors in terms of their share in the overall financing of IBI by the end of September 2022.
The breakup of client wise financing portfolio explained that the share of the corporate sector (68.8 percent) remained highest in the overall financing of IBI followed by commodity financing (16.2 percent) and consumer finance (10.8 percent).
On the other hand, according to the Global Islamic Fintech Index (GIFT), Pakistan ranks 9th out of a list of 64 countries, with a market size projected to be $2.8 billion by 2025. Yet, very few identify themselves as Islamic Fintechs or even use the word in their branding. Obviously, many of the biggest names in the sector are actually payment players, primarily digital wallets, thus making it sort of understood that they are Shariah-compliant.