Islamic Finance Industry 2021

I S L A M I C F I N A N C E &
W E A LT H M A N A G E M E N T
2 0 2 1
Foreword from Alpen Capital and Alpen Asset Advisors
The Islamic finance industry has grown over the years to become an integral and influential part of the global financial landscape.
The COVID 19 pandemic has disrupted the industry and put its resilience to test. At the same time, it has also brought ethical
consumerism and Environment, Social and Governance (ESG) factors to center stage. Islamic finance by its very nature,
incorporates sustainability and accountability and therefore has the potential to appeal to a broader consumer base. The
performance of the sector during the pandemic has shown that it also make good business sense.
Alpen Capital and Alpen Asset Advisors are committed to supporting the ‘Dubai: Capital of Islamic Economy’ strategy launched
under the directive of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE
and Ruler of Dubai. Islamic finance and wealth management have the potential to make significant contribution to this strategy.
We expect to see rapid growth in the sector and we are gearing up to meet the rising demand through our Shari’ah-compliant
financial products.
We are pleased to present our Islamic Finance and Wealth Management Report 2021. The report provides insights into the global
Islamic Finance market along with a perspective on the growth drivers and outlook for the sector. We hope you enjoy reading our
report.
Thank you for your continued trust in Alpen Capital and Alpen Asset Advisors.
Islamic Finance and Wealth Management Report June 29, 2021 In Page | 2
Foreword from Dubai Economy
Over the past couple of years, the Islamic economy has established an increasingly important footing in the global economy driven
by increasing consumer demand for dedicated products and services based on the Islamic law. The Islamic economy is not only
creating value for consumers and economies involved but also contributing towards global well-being through its underlying
socially-conscious ethos.
The Dubai: Capital of Islamic Economy Strategy launched under the directive of His Highness Sheikh Mohammed Bin Rashid Al
Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, aims to establish Dubai as the global capital of the
Islamic economy. This strategic plan is a roadmap for the future which sets the framework for uniting the efforts of various
institutions and parties operating in this sector to meet the increasing demands of consumers across the world. The initiative has
driven substantial developments within the Islamic economy in the UAE.
Islamic Finance is an important pillar of The Dubai: Capital of Islamic Economy Strategy. We are happy to collaborate with Alpen
Capital and Alpen Asset Advisors in this report which provides a broad overview of the market dynamics and characteristics of
the Islamic finance and wealth management industry.
His Excellency Sami Al Qamzi,

Director General,
Dubai Economy
Foreword from the Shari’ah Supervisory Board of Alpen Capital and Alpen
Asset Advisors
The global Islamic finance industry has been growing rapidly over the past couple of years and has witnessed a rise in the number
of Islamic platforms set up around the world, to provide a range of Shari’ah compliant structured finance solutions. Furthermore,
under the ‘Dubai: Capital of Global Islamic Economic’ strategy we are witnessing a renewed interest and demand for Shari’ah
compliant products and services.
In response to the growing interest in the sector, Alpen Asset Advisors and Alpen Capital have published this report that outlines
the growth and recent developments in Islamic finance and wealth management. The report gives an overview of the global Islamic
finance market and analyses the demand drivers and opportunities in the sector.
We, as the Shari’ah Board, are pleased with this initiative that showcases the landscape of the Islamic finance and wealth
management industry. It demonstrates the ability and commitment of Alpen Asset Advisors and Alpen Capital to contribute towards
the growth of the sector. We would like to express our best wishes and hope that they achieve sustainable success.
Wallahu Waliuu Al-Tawfiq
Sheikh Dr. Mohamed Ali Elgari Sheikh Abdulsatter Ali Al Khattan Sheikh Dr. Amin Fateh
Chairman Board Member Board Member
Table of Contents
1. EXECUTIVE SUMMARY ........................................................................... 6
2. ISLAMIC FINANCE INDUSTRY ............................................................... 8
2.1 Islamic Banking .......................................................................................... 11
2.2 Sukuk ........................................................................................................ 23
2.3 Islamic Funds ............................................................................................. 33
2.4 Takaful ...................................................................................................... 38
2.5 Other Islamic Financial Institutions (OIFIs) ..................................................... 43
3. ISLAMIC WEALTH MANAGEMENT ........................................................ 46
4. ISLAMIC SOCIAL FINANCE .................................................................. 53
5. ISLAMIC ACQUISITION DEALS ............................................................ 57
6. DEMAND DRIVERS .............................................................................. 61
7. EMERGING THEMES ............................................................................. 65
8. INDUSTRY OUTLOOK ........................................................................... 73
1. Executive Summary
COVID-19 has disrupted global financial markets at an unprecedented scale, and the impact
has tested the resilience of Islamic finance markets in equal measure. However, the global
penetration of the Islamic finance sector over the last couple of decades has been influential
in driving the overall growth. Moreover, the ability to exhibit higher levels of ethical credibility
is likely to sustain this growth post-pandemic, especially amid the rise in ethical
consciousness. As the industry aims to stabilize, rise in technology adoption, digital
solutions, data-driven decision-making and data sharing across the finance, banking, capital
markets and microfinance domains, are likely to accelerate the recovery and further
augment its resilience. Digitization is disrupting business models across the Islamic Finance
with services such as digital payment platforms and wallets to robo-advisory services,
insurance (takaful), digital currency exchanges (crypto) and sukuk, among others.
Governments of major Islamic finance markets are also playing a major role in spearheading
recovery through initiatives aimed at reforming the industry. Core Islamic finance markets in
the wider Middle East, the GCC and SE Asia will continue evolving, such as through plans
for centralized regulations and forging national strategies aimed at boosting the role of
Islamic finance in the economy. At the same time, non-core markets are likely to witness
higher penetration and implementation of Islamic finance frameworks.
1.1 Scope of the Report

This report provides insight into the global Islamic finance and wealth management industry.
It presents a broad overview of the market dynamics and characteristics, along with a
perspective of the COVID-19 impact on the industry. The report also covers the various
instruments driving the market, along with demand drivers and challenges, emerging trends,
and an outlook for the sector.
1.2 Industry Overview

• Islamic Finance has grown into an influential global financial segment, buoyed by the
large and growing Muslim population seeking Shariah-compliant financial instruments,
and the industry’s ability to demonstrate a higher level of ethical credibility.
• The global Islamic finance market grew at a steady pace, benefitting largely from strong
investments in the halal sectors, infrastructure, sukuk and Islamic funds, especially
through electronic mediums.
• The global Islamic asset market remained largely concentrated in Iran, Saudi Arabia
and Malaysia. Region-wise, the GCC held the highest share in Islamic finance assets,
while SE Asia also gained significant momentum over past few years.
• Islamic Banking accounts for majority of the total global Islamic finance industry assets.
The segment has developed at a steady pace, with non-core markets growing the
fastest, and is likely to see further expansion with newer services.
• Global Islamic financial assets have witnessed robust growth, partly due to elevated
levels of sukuk issuance recorded in traditional markets within the GCC and SE Asia.
• Islamic funds recorded high growth levels, mainly driven by new launches of Islamic
exchange traded funds (ETFs) in several countries and ESG-related investment assets
made available through digital media.
• Global takaful assets considerably recovered from losses witnessed over the past two
years, with takaful assets in GCC recording higher growth due to improved profitability.
1.3 Demand Drivers
• Stimulus packages, fiscal and monetary easing, and liquidity support by major Islamic
governments and Central banks; along with higher projected global growth in 2021, is
likely to drive post-pandemic recovery and demand for Islamic finance assets.
• The Islamic finance industry recorded strong growth in 2019, driven by Islamic Capital
Markets, Islamic Banking and Islamic Funds due to higher sukuk issuances, new banks
emerging, and the onset of Islamic ETFs and ESG-related investment assets.
• The rapidly growing young Muslim population has been boosting demand for Shariah-
compliant and Islamic financial products and services.
• The global trend of ethical consumerism has grown in popularity in recent years,
leading to higher appeal of Islamic products. This uptick is likely to attract a new class
of consumers driven by social consciousness, trickling down to higher demand for
Islamic finance services and platforms.
• Governments across the globe have taken measures to support the Islamic FinTech
ecosystem, encourage digitalization of banks, boost tokenization of sukuks, and
bolster markets that are rising in prominence such as Islamic social finance and ESG.
Such measures are likely to enhance the Islamic finance market and drive growth.
• The continuous adoption and integration of new and emerging technologies is likely to
accentuate the Islamic finance market, as digital solutions offer improvements in
accessibility and efficiency, along with broadening their service offerings.
1.4 Industry Outlook

• Islamic financial institutions spent most of 2020 coping with the dual shocks of
adjusting to the pandemic and low oil prices. Thus, a speedy and effective response
has now become crucial to ensure profitability, as well as spur recovery and growth in
the industry.
• Governments of major Islamic finance markets have been spearheading this recovery
through initiatives aimed at reforming the industry. Although the industry lacks in terms
of global standardization, governments are likely to focus more towards infrastructure
development in the near-term.
• With new applications within AI, blockchain, and IoT being explored, fresh digital
solutions are likely to enhance the market attractiveness and further strengthen the
Islamic finance industry.
• The rise in Islamic FinTech’s popularity is also prompting a surge in FinTech-focused
investment funds, which are likely to accentuate the market and create opportunities
for Islamic FinTechs to expand services.
• Concepts such as ESG/sustainable investing, and green sukuk are also rising in
prominence and gaining investor interest. Potential developments within such
conceptual instruments are likely to support growth in the coming years.
• Several new avenues have opened up within Islamic investment, such as charitable
trusts with a focus on specialized sectors, private equity, exchange-traded sukuk
funds, Shariah-compliant Mortgage Investment Funds, Mutual Halal funds and other
Islamic funds. The wide offerings are likely to appeal to a broader consumer base, thus
improving demand prospects for Islamic instruments.
Although the industry lacks in terms of global standardization, there is a renewed and
higher focus on infrastructure development, creating new opportunities for private players
through M&A, consolidation and innovation across the Islamic finance and wealth
management domain. Consolidation is expected to continue amid the prevailing weak
economic condition. At the same time, new players are emerging globally with niche
offerings, especially in the nascent Islamic markets. Newer markets are likely to drive
growth as the core Islamic countries grow towards maturity.
2. Islamic Finance Industry
The global Islamic finance Islamic finance has grown from a discrete service to an influential segment in the global
financial landscape over the past couple of decades. The Islamic finance model relies on
market has been growing at a
several principles derived from the Shariah law, including but not limited to shared
steady pace, recording a
risk/reward, prohibition of interest, prohibition of uncertainty/speculation, and the necessity
CAGR of 7.8% between 2014
of physical presence for money transfers1. Besides the large and growing Muslim population
and 2019 that seeks Shariah-compliant financial instruments, the industry’s ability to demonstrate a
higher level of ethical credibility has fueled the sector’s growth, especially after the 2008
financial crisis, which led investors to seek instruments that emphasized risk sharing2.
However, this growth continues to remain largely concentrated to a few jurisdictions and is
only now beginning to penetrate several new potential markets across the globe3.
Global Islamic Assets
The global Islamic finance market has been growing at a steady pace, recording a CAGR of
Green Sukuk and SRI Sukuk
7.8% between 2014 and 2019. The industry has largely benefitted from strong investments
are growing in prominence in
in the halal sectors, infrastructure, sukuk and Islamic funds, especially through electronic
the UAE and SE Asia
modes in all products and services.
Exhibit 1: Islamic Financial Asset by Segments (US$ billion, 2014-2019)
Source: ICD-Refinitiv Islamic Finance Development Indicator
In 2019, the global Islamic financial assets grew 14.4% y-o-y to reach US$ 2,875 billion,
In 2019, the global Islamic
picking up pace after a moderate rise of 2.0% y-o-y in 20184. This double-digit growth was
financial assets grew 14.4% y-
recorded partly due to higher sukuk issuance in the traditional markets. The sukuk market
o-y due in parts to the higher expanded by 14.5% y-o-y to US$ 538 billion in 2019 compared to a 10.3% y-o-y rise in the
sukuk issuance in the previous year. Accounting for 19% of the total global Islamic finance industry assets, it grew
traditional markets 18.3% y-o-y in issuance value to US$ 145.7 billion, maintaining the double-digit growth in
the sukuk industry seen over the past five years. The GCC and Southeast Asia (SE Asia)
markets recorded elevated levels of sukuk issuance during the year. Indonesia recorded a
1
Source: “The rise and rise of Islamic finance”, Bearing Point
2
Source: “Realizing the Potential of Islamic Finance”, The World Bank, March 2012
3
Source: “The Future of Islamic Finance in the Global Economy”, The Pangean, July 18, 2019
4
Source: Islamic Finance Development Report 2020: Progressing Through Adversity, ICD Refinitiv
37% y-o-y rise in issuance and Brunei became the fastest growing market, as sukuk
remained the debt instrument of choice to finance budget deficits and maintain liquidity.
Notably, green sukuk and SRI (Socially Responsible Investment) Sukuk are growing in
prominence in the UAE and SE Asia, while non-core markets such as Kazakhstan and
Uzbekistan prepare regulations to issue green sukuks. Islamic funds also made a significant
contribution to the industry’s growth with the asset class rising 29.6% y-o-y in 2019 to reach
US$ 140 billion. The segment bounced back from a 10% y-o-y slump in 2018 to record the
highest growth over the last decade. This growth was mainly driven by new launches of
Islamic exchange traded funds (ETFs) in a number of countries and of ESG-related
investment assets made available through digital media5.
Exhibit 2: Distribution of Global Islamic Finance Assets (2019)
Size Share of Islamic No. of Institutions/

Banks
(US$ Billion) Finance Assets Instruments
Islamic Banking 1,993 69% 526
Sukuk 538 19% 3,420
Other IFIs 153 5% 645
Islamic Funds 140 5% 1,749
Takaful 51 2% 336
Islamic Banking, which accounts for 69.3% of the total global Islamic finance industry assets,
Islamic Banking, which
grew at a pace of 14.2% y-o-y during 2019 to reach US$ 1,993 billion. Non-core markets
accounts for 69.3% of the total
such as Morocco, where ‘participatory banking’ was introduced in 2017, witnessed the
global Islamic finance industry fastest expansion6. Islamic banking in Morocco has since seen growth averaging an annual
assets, grew at a pace of 120%7. Other markets likely to see further expansion in Islamic banking include the
14.2% y-o-y during 2019 Philippines and Turkey. The Philippines passed a new Islamic banking law in 2019 that
allows domestic and foreign banks to establish Shariah-compliant banking windows. The
core markets accounted for the highest share of Islamic banking assets to GDP in 2019.
Islamic banking assets to GDP in Bahrain was the highest (111% of GDP), followed by Iran
(79% of GDP), Kuwait (37% of GDP), Qatar (31% of GDP) and the UAE (24% of GDP).8
The global Takaful assets grew On the other hand, the global Takaful assets grew 10.9% y-o-y to US$ 51 billion, a
considerable recovery from losses witnessed over the past two years. Saudi Arabia, the
10.9% y-o-y in 2019 while grew
world’s largest Takaful market, recorded 8.8% y-o-y growth in contributions as the
5.5% y-o-y during the year
introduction of mandatory health insurance brought in new business. Takaful assets in other
GCC markets recorded higher growth, with contributions rising 14% in 20199. During the
year, Takaful operators in the GCC reported improvement in profitability of investments as
growth was seen across several business lines. Lastly, the Other Islamic Financial
Institutions (OIFI), which consists of financial institutions such as investment and financing
firms, mortgage, leasing and factoring companies, grew 5.5% y-o-y to US$ 153 billion in
2019. Malaysia topped the list of OIFIs with assets worth US$ 54 billion in 2019. The
Maldives was the fastest growing market in OIFI, with total assets rising 62% to US$ 44
million, aided by government support for developing conducive frameworks. The rising
5
6
7
8
Source: Islamic Banking Act passed in the Philippines”, ZICO Law, November 25, 2019
9
popularity of Shariah-compliant housing financing in the Maldives led to a 31% y-o-y
increase in such assets during 201910.
Global Top 10 Countries by Islamic Assets
The global Islamic asset market remained largely concentrated in Iran, Saudi Arabia and
The global Islamic asset
Malaysia, which together accounted for 66% of the total assets in 2019. Bahrain holds the
market remained largely
highest Islamic finance assets to GDP at 124%, followed by Malaysia (53%), Iran (47%),
concentrated in Iran, Saudi Kuwait (43%), and Qatar (40%). Countries that hold a huge Muslim population, outside the
Arabia and Malaysia, together core markets of GCC and Malaysia, are also gathering momentum. For instance, Morocco
accounting for 66% of the total recorded the fastest growth in 2019, following the opening of its first ‘participative bank’ in
assets in 2019 2017. Tajikistan and Nigeria followed Morocco to record the fastest growth in Islamic
Financial assets during the year. Among the top 10 countries in Islamic finance by assets,
Iran led with US$ 698 billion in assets, followed by Saudi Arabia with US$ 629 billion.
Indonesia recorded the highest average growth of 19.7% over five years to 201911.
Exhibit 3: Top Countries by Islamic Finance Assets (US$ billion, 2014-2019)
5-year
Country 2014 2015 2016 2017 2018 2019
CAGR
Iran 345 434 545 578 575 698 15.1%
Saudi Arabia 413 447 473 509 541 629 8.8%
Malaysia 415 414 406 491 521 570 6.5%
UAE 161 187 203 222 238 234 7.7%
Qatar 87 101 68 129 125 144 10.7%
Kuwait 98 100 120 109 116 132 6.3%
Indonesia 40 48 82 82 86 99 19.7%
Bahrain 73 81 99 84 86 96 5.6%
Turkey 54 52 50 54 51 63 3.1%
Bangladesh 23 26 31 34 38 45 14.2%
Others 265 311 230 169 136 164 -9.1%
Total 1,975 2,201 2,307 2,461 2,513 2,875 7.8%

Region-wise, the GCC held the highest share in Islamic finance assets with 43.6% or US$
GCC held the highest share in
1,253 billion, while other MENA countries and South East Asia (SE Asia) accounted for
Islamic finance assets with 26.3% (US$ 755 billion) and 23.8% (US$ 685 billion), respectively12. Notably, SE Asia
43.6% while other MENA gained significant momentum in terms of growth in Islamic finance over past few years. This
countries and SE Asia growth was largely backed by the growing Muslim population in the region, along with a
accounted for 26.3% and rising proportion of Muslims who seek to make investments that are in line with their religious
23.8%, respectively beliefs. Consequently, the governments in the region, especially Malaysia and Indonesia,
played an active role in promoting Islamic finance instruments and rolled out a number of
regulations to support the landscape13.
10
11
12
13
Source: “An Overview of Islamic Banking and Finance in Asia”, ADB Institute, July 2018
Exhibit 4: Islamic Finance Assets by Region (2019) Exhibit 5: Islamic Finance Assets by Region (2019)
Source: ICD-Refinitiv Islamic Finance Development Indicator Source: ICD-Refinitiv Islamic Finance Development Indicator
2.1 Islamic Banking

Overview
Islamic banks have grown to create a market that is competitive for conventional banks in
several Islamic countries, gradually eating up their market share and offering products that
match their level of service and scale of operation. The increasing need amongst Islamic
population for Shariah-compliant banking has led to its growth across the Middle East, South
Asia and North Africa regions. While Shariah compliance is at the core of every Islamic
banking institution, there are differences in opinions related to the application or
interpretation of Shariah law amongst the different regions, notably between the Middle East
and Malaysia. Recently, a number of Central Banks and financial authorities have started
officially adopting AAOIFI standards (Accounting and Auditing Organization for Islamic
Financial Institutions) which can help financial institutions with Shariah compliance14.
Islamic Banking Assets
Islamic banking is the largest Islamic banking is the largest sector in the Islamic finance industry, contributing to 69.3% of
the industry's assets in 2019. The sector is supported by an array of commercial, wholesale,
sector in the Islamic finance
and other types of banks. Although the total share of Islamic banking has fallen from 73.1%
industry, contributing to 69.3%
in 2014 due to the rapid rise of Islamic Capital Market (ICM) instruments, especially sukuk
of the industry's assets in 2019 and Islamic funds, it recorded a CAGR of 6.7% over the past five years. After weathering
subdued growth since 2016, the sector rose 14.2% y-o-y in 2019 to US$ 1,993 billion in
global assets15. This growth can be largely attributed to improvements in assets across the
GCC, which witnessed significant mergers of Islamic banks to strengthen competitiveness,
attract stable deposits and enhance efficiency.
14
Source: “Islamic Banking Processes and Products – Key Regional Variations”, Oracle Financial Services 2017
15
Exhibit 6: Global Islamic Banking Assets Size (US$ billion, 2014-2019)
Aggregate Islamic banking assets growth in Malaysia, one of the largest markets, grew
38.8% to US$ 297 billion in 2019 after surging by 6.5% y-o-y during the previous year16.
This growth was backed by the country’s ‘Islamic First’ strategy, as part of which new
banking customers are offered Islamic products over conventional ones17. This approach
led to a healthy 18.3% y-o-y growth in financing during 2018. In 2019, Islamic financing grew
8.0% y-o-y for Malaysian banks. On the other hand, deposits in Malaysia grew by 19.4% y-
o-y and 8.0% y-o-y in 2018 and 2019, respectively18, reflecting the healthy liquidity of the
country’s Islamic banking industry. Malaysia continues to enjoy a level playing field that is
supported by the favorable demographics, supportive regulations and prudential banking
requirements that are broadly similar to the country’s conventional banks19.
Exhibit 7: No. of Islamic Banks by Type (2019) Exhibit 8: Islamic Banking Annual Assets for Select
Economies (US$ billion, 2019-2020)
Source: ICD-Refinitiv Islamic Finance Development Indicator Source: Saudi Central Bank, Kamco Invest, Bank Negara Malaysia, Qatar Central
Bank, Central Bank of UAE, Central Bank of Bahrain, Central Bank of Oman
16
17
Source: “Islamic first’ strategy puts Malaysia on track toward 40% Shariah banking goal”, China Go Abroad
18
Source: Bank Negara Malaysia Statistical Bulletin
19
Source: “Malaysia Islamic Banks Dashboard 2020”, Fitch Ratings, March 04, 2020
Shariah-compliant assets represent a significant portion of total banking assets of the GCC.
GCC countries collectively
Moreover, the GCC countries collectively accounted for 45.2% of the total Islamic banking
account for 45.2% of the total
assets globally. Within the region, Saudi Arabia (US$ 551.1 billion) leads the GCC in terms
Islamic banking assets of Islamic banking assets, followed by the UAE (US$ 162.7 billion), Kuwait (US$ 127.1
globally billion) and Qatar (US$ 121.7 billion) 20.
Exhibit 9: Share of Islamic Banking Assets of Total Banking Assets in Select Economies (2018-2020)
Source: Saudi Central Bank, Kamco Invest, Bank Negara Malaysia, Qatar Central Bank, Central Bank of UAE, Central Bank of Bahrain, Central Bank of Oman
Saudi Arabia recorded double- Saudi Arabia, the second largest market in global Islamic banking, recorded 16.8% y-o-y
asset growth in 2020 compared to 13.8% y-o-y in 2019. This growth was supported by a
digit asset growth rates in
16.7% y-o-y growth in financing underpinned by strong credit demand and support from the
2020 while Kuwait, Oman, and
authorities amid the pandemic21, coupled with a robust recovery in the deposit base with
Qatar remained strong amid 15.4% y-o-y growth in 202022. Islamic banks in Saudi Arabia remained well placed with the
the economic headwinds due larger retail franchises reporting a lower cost of funding and better asset quality. Moreover,
to pandemic their lower proportion of corporate banking allowed the banks to enjoy lower impaired
financing ratios and financing impairment charges, and thus, better asset quality as
compared to the conventional banks23. In 2019, Islamic banks in Kuwait rode high on the
infrastructure program launched under the ‘New Kuwait Vision 2035’, recording a 16.5% y-
o-y rise in assets during 201924. However, this growth was hampered in 2020 amid the dual
shock of oil price crash and the pandemic with the Islamic banking assets recording a 8.8%
y-o-y rise during the year25. The market in Oman continues to remain strong despite the
economic headwinds owing to regulatory improvements and enhanced maturity. While the
annual growth slowed down to 6.3% in 2020 from 11.1% in 2019, Islamic banking assets as
a share of the total banking assets continued to rise26. The country was also rated as the
second fastest-growing Islamic financing market in the world by Moody’s27. In Qatar, the
20
Source: Saudi Central Bank, Kamco Invest, Bank Negara Malaysia, Qatar Central Bank, Central Bank of UAE,
Central Bank of Bahrain, Central Bank of Oman
21
Source: “Saudi Arabian Banks' Retail Rush to Continue”, Fitch Ratings, February 18, 2021
22
Source: Saudi Central Bank Monthly Statistical Bulletins 2020
23
Source: “Saudi Islamic Banks: 2019 Dashboard”, Fitch Ratings, May 19, 2020
24
Source: Kamco Invest 2020 Report
25
Source: Kamco Invest 2020 Report
26
Source: Central Bank of Oman Annual Reports
27
Source: “Islamic Banking in Oman hits RO5.4bn in assets as market share rises”, Salaam Gateway, April 20, 2021
8.4% y-o-y growth in assets during 202028 was buoyed by strong regulatory support and
focus on technological developments that allowed easy and safe execution of services amid
the pandemic29. On the other hand, Islamic banking assets in the UAE recorded an improved
performance, growing by 5.3% y-o-y in 2020 as against the 1.9% decline in 2019 due to
severe economic strains. Moreover, the UAE reported weakening in their asset quality
largely due to stressed real estate and contracting sectors, along with pressures in the
entertainment, hospitality, and retail & wholesale trade during 201930. The country fared
better than conventional banks during 2020 and significantly improved its market share,
largely driven by a 6.8% growth in financing which primarily comprised of private corporate
and retail financing31.
Competitive Landscape: Largest Islamic Banks by Asset Size
As of 2019, there were 526 Islamic banks including windows across the globe32. The global
There were 526 Islamic banks
Islamic banking market is highly competitive, with the presence of large number of
across the globe as of 2019;
international players. Al-Rajhi Bank, Dubai Islamic Bank, Kuwait Finance House, Qatar
Malaysia, Saudi Arabia, the
Islamic Bank, and Abu Dhabi Islamic Bank are some of the major players operating in the
UAE, Qatar and Kuwait are the region. Saudi Arabia, the second-largest market for Islamic finance, has 16 Islamic banks
largest markets in terms of the (including windows) which is less than the smaller markets of Malaysia and the UAE. The
Islamic bank assets 100 largest Islamic banks globally recorded an average asset growth of 8.0% in 2019, higher
than that recorded by the 100 largest banks in the Middle East (5.3%) and the 500 largest
banks (5.6%) in Asia Pacific33. Compared to the conventional banks, margins also remained
wider for the Islamic banks, supported by a low-cost deposit-funding base34. Malaysia, Saudi
Arabia, the UAE, Qatar and Kuwait are the largest markets in terms of the Islamic bank
assets, with their aggregate assets representing 79% of the combined assets of the 100
largest Islamic banks.
Exhibit 10: Largest Islamic Banks in GCC (US$ billion, 2020)
Bank Country Assets Deposits Net Loans
Al Rajhi Saudi Arabia 126.58 103.31 85.24
Dubai Islamic UAE 78.18 55.60 53.11
Kuwait Finance House Kuwait 70.74 50.39 35.36
Alinma Saudi Arabia 42.36 32.25 30.02
Abu Dhabi Islamic UAE 34.51 27.34 22.56
Al Baraka Banking Group Bahrain 28.25 7.51 2.85
AlJazira Saudi Arabia 24.86 18.36 14.57
Dukhan Bank (Barwa Bank) Qatar 23.30 1.98 15.80
Bank Boubyan Kuwait 21.18 16.80 15.87
Sharjah Islamic Bank UAE 14.47 9.07 2.11
Source: Company Financial Reports, Annual Reports
28
Source: “Financial Stability Review 2019”, Qatar Central Bank
29
Source: “Islamic finance making steady growth in Qatar”, Gulf Times, June 12, 2021
30
Source: “UAE Islamic Banks: 2019 Results Dashboard”, Fitch Ratings, June 30, 2020
31
Source: Central Bank of the UAE Quarterly Reports
32
33
Source: “Largest Islamic Banks 2019”, The Asian Banker
34
Source: “Strongest Islamic Banks 2019”, The Asian Banker
The GCC accounted for 62.3% The GCC accounted for approximately 62.3% of the combined assets of the 100 largest
Islamic banks globally in 2019. Strong profitability, asset quality, capital position and ample
of the combined assets of the
liquidity of the four large Islamic banks in Saudi Arabia, makes the Kingdom a leader in the
100 largest Islamic banks
region. It accounts for 18.7% of the assets of the 100 largest Islamic banks globally, and
globally in 2019 Saudi Arabia’s Al Rajhi Bank is the largest Islamic bank globally. In 2020, Al Rajhi Bank
recorded a 22.1% expansion in assets to US$ 126.6 billion from US$ 103.7 billion in 201935.
The UAE followed closely, accounting for 17.7% of the global assets with seven of its Islamic
banks featuring amongst the top 100. Although Bahrain led the region with 15 Islamic banks,
it accounted for only 5.8% of the aggregate assets in 2019.
Consolidation in the GCC Islamic Banking Sector
As the sector looks to enhance its service offerings, consolidation is likely to remain a key
theme in the GCC markets. This can be seen in the recent mergers of Barwa Bank with
International Bank of Qatar, which made it the country’s third-largest Islamic banking
franchise36, and the Dubai Islamic Bank’s merger with Noor Bank, which created one of
the largest Islamic banks in the world with about US$ 75 billion worth of Shariah-compliant
assets37. Similarly, the merger between Abu Dhabi Commercial Bank, Union National
Bank and Al Hilal Bank created another banking powerhouse in the UAE with about US$
115 billion of assets, making it the country’s third largest lender. The new entity plans to
tap on Al Hilal’s strength in the Islamic finance market, and accounts for about 21% of the
country’s total loan market38. In a bid to tap on the growing demand for Islamic banking
services, Bahrain Islamic Bank accepted an offer from the National Bank of Bahrain to
raise its shareholding in the Shariah-compliant lender from 29% to 78.8%39. Kuwait
Finance House, the country’s largest Islamic financial institution, has also agreed to
acquire Ahli United Bank of Bahrain that boasts shareholdings in banks in Egypt, Libya,
Iraq, Kuwait and Oman40.
Islamic banking outside the GCC are largely concentrated in a few countries in the wider
Malaysia is the largest market
MENA and the SE Asia region. Globally, Malaysia is the largest market in terms of assets
in terms of assets for Islamic
for Islamic banking, accounting for 22.7% of the total assets of the 100 largest Islamic banks
banking, accounting for 22.7% in 201941. 16 Islamic banks from the country featured amongst the 100 largest Islamic banks
of the total assets of the 100 globally while six of them were amongst the top 20. However, the ROA for Malaysian banks
largest Islamic banks in 2019 is significantly lower at 0.8%, as compared to its closest peer, Saudi Arabia, which records
ROA at 2.0%. Amongst the other notable SE Asian countries, Indonesia had 13 banks
amongst the top 100 but accounted for a mere 2.4% in aggregate assets. The fastest
expansion was seen in countries outside the core SE Asian and GCC markets, particularly
Morocco, where assets more than doubled in 2019. Introduced in 2017, Islamic banking in
Morocco has since seen exponential growth averaging an annual 120%42. Iran, on the other
hand, accounts for 4.0% of the total assets43. Among the smaller markets that hold immense
potential for growth, Turkey is likely to double its Islamic banking assets over the next 10
years amid government initiatives and new regulations that will help expand the sector44.
35
Source: Company Financial Reports
36
Source: “World's Best Islamic Financial Institutions 2020: Fair Winds Before The Storm”, Global Finance, May 12,
2020
37
Source: “Safest Islamic Banks In The GCC”, Global Finance, November 12, 2020
38
Source: “GCC banks consolidate as oil prices remain flat”, The Banker, March 9, 2020
39
Source: “National Bank of Bahrain to acquire 78.8% stake in Bahrain Islamic Bank”, NS Banking, January 20, 2020
40
Source: “Virus May Force Kuwait Finance and AUB to Reassess Merger”, Bloomberg, May 3, 2020
41
Source: “The Largest Islamic Banks Rankings 2019”, The Asian Banker
42
43
Source: “The Largest Islamic Banks Rankings 2019”, The Asian Banker
44
Source: “Top Islamic Financial Institutions 2020”, The Banker, November 2, 2020
Exhibit 11: Largest Islamic Banks Outside GCC (US$ billion, 2020)
Bank Country Assets Deposits Net Loans
Maybank Islamic Malaysia 60.80 39.37 48.51
AmBank Islamic Malaysia 40.30 26.91 25.24
CIMB Islamic Bank Malaysia 27.74 23.02 20.18
Bank Rakyat** Malaysia 26.82 20.77 18.08
RHB Islamic Bank Malaysia 18.28 12.96 14.35
Bank Islam Malaysia Malaysia 17.78 12.17 13.02
Public Islamic Bank Malaysia 17.05 14.73 12.90
Islamic Bank Bangladesh** Bangladesh 15.54 12.84 -
MBSB Bank** Malaysia 11.80 6.21 7.94
Hong Leong Islamic Bank Malaysia 9.71 8.05 7.08
Source: Company Financial Reports, Annual Reports

Note: **Data as of September 2020 (Q3 2020)
Islamic Deposit Products
Broadly, Islamic banks have two types of accounts: Savings and Current Accounts that are
not committed for investment; and, Investment Accounts. While Current Accounts are
operated in a manner similar to that of conventional banks, Savings and Investment
Accounts are operated differently45.
Savings Account: Similar to conventional banks, Savings account in Islamic banks allow
the customers to deposit their savings, allowing the banks to use that money with a
guarantee of getting the complete amount back. The difference, however, lies in the
avoidance of Riba (interest or usury). Islamic banks are not obliged to pay any rewards to
the savers. In case of significant profits, banks either pay a cash reward from their year-end
profits using a pre-determined ratio, or give certain privileges to the account holders. There
are two types of popular savings account: Wadiah and Qard. Wadiah correspond to
safekeeping, custody, deposit and trust.
Investment Account: Such accounts are divided further into accounts with and without
authorization. Accounts with authorization allow the banks to invest the money in any of the
bank’s projects. At the end of the specified period, the account holder receives a profit from
this investment. In case of investment accounts without authorization, the account holder
chooses any particular project for investment, receiving a share of its profit at the end of its
tenure using a pre-determined percentage. As the Islamic banks cannot charge interest on
the money lent, they invest money in projects and earn profits, not only for itself but also for
the depositors in investment accounts. The investment procedures based on the Islamic
principles of Musharkah (Equity Participation), Dimishing Musharkah, Mudarabah
(Agencies), Murabaha, Iljarah, Istisna, Tawarruq and Salam.
45
Source: “How Islamic Banks Operate”, Islamic Markets
Exhibit 12: Key Islamic Banking Deposit Products across Geographies
Product/Process Middle East North Africa Malaysia Indonesia
Savings Account
based on: Mudharabah is most
Mudharabah and Qard Mudharabah and Qard Wadiah is more popular
Ø Wadiah popular, followed by
are standard offerings are standard offerings than Mudharabah
Ø Mudharabah Wadiah
Ø Qard
Current Account
based on:
Qard and Mudharabah Qard and Mudharabah Only Wadiah is offered Only Wadiah is offered
Ø Wadiah
are standard offerings are standard offerings to customers to customers
Ø Mudharabah
Ø Qard
Fixed Deposit based Mudharabah is the

on: standard offering.
All three are popular Only Mudharabah is
Ø Mudharabah All three are popular Commodity Murabaha
products, especially being offered to
Ø Commodity products and Walakah are
within GCC countries customers
Murabaha gradually becoming
Ø Wakalah more popular
Source: Islamic Banking Processes and Products, Oracle Financial Services
Performance of Islamic Banking Deposits
The share of Islamic banking Islamic banks across the GCC have become systemically important and continue to
increase their market penetration, outpacing conventional banks. The share of Islamic
deposit of the total in Saudi
banking deposit of the total in Saudi Arabia (81%) is one of the highest in the world as its
Arabia is the highest in the
banking market trends towards converting to full-fledged Islamic banks. In 2020, the
world; It recorded 15.4% y-o-y Kingdom’s Islamic banks reported 15.4% y-o-y growth in deposits to reach SAR 1,576,073
growth in 2020 million (US$ 425,539 million)46. Deposits in the UAE Islamic banks grew marginally higher
than the previous year by 2.2% to reach AED 410.9 billion (US$ 110.9 billion), accounting
for 21.8% of the total bank deposits in the country47. Although the share has been relatively
muted since 2017 due economic pressure, the market has been mainly driven by growth in
non-resident deposits. The gross financing/deposits ratio in the UAE rose to 95.2% at the
end of 2020, slightly above the conventional banks48. Oman recorded a growth of 5.4% y-o-
y in deposits during 2020, slower than 10.3% y-o-y recorded in the previous year, due to the
severe economic pressure caused by the pandemic and the fall in oil prices. The Sultanate’s
Islamic banking deposits reached OMR 3,788.5 million (US$ 9,850.1 million), and its share
of the total rose to 14.3% in 2020 from 12.8% in 201849. In Malaysia, Islamic banking
deposits grew 6.9% y-o-y to reach MYR 659,825 million (US$ 157,170 million) in 2019, and
accounted for 31.6% of the total banking deposits in the country50.
46
47
48
49
50
Exhibit 13: Share of Islamic Banking Deposits of Total Deposits for Select Economies (2018-2020)
Source: Saudi Central Bank, Kamco Invest, Bank Negara Malaysia, Qatar Central Bank, Central Bank of the UAE, Central Bank of Bahrain
While the sustained slowdown in oil prices continue to reduce the flow of deposits from the
government and government-related entities, poor economic environment has also led to an
overall slowdown in corporate deposits inflows in most GCC countries. Despite tightening
liquidity in the region, Islamic and conventional banks have generally coped well. In Saudi
Arabia, the largest Islamic banking system by assets in the GCC, retail deposits at Islamic
banks represent more than 80% of their deposit bases. As deposit growth slows, such banks
are likely to increase market funding to bridge the funding gap and support credit growth,
which will in turn pressure their Liquidity coverage ratio (LCR).
Exhibit 14: Islamic Deposits Growth of Top Islamic Banks in the GCC (2019-20)
2019 2020
Banks Y-o-Y Growth
(US$ Billion) (US$ Billion)
Al Rajhi Bank 84.35 103.31 22.5%
Kuwait Finance House 44.59 50.39 13.0%
Alinma Bank 27.56 32.25 17.0%
Abu Dhabi Islamic Bank 27.38 27.34 -0.1%
Bank Boubyan 14.30 16.80 17.5%
Sharjah Islamic Bank 7.37 9.07 23.0%
Al Baraka Banking Group 6.20 7.51 21.2%
Dukhan Bank (Barwa Bank) 1.46 1.98 36.0%
Source: Company Financial Reports; Annual Reports
Islamic Financing Products
Islamic banking financing instruments consist of equity-like and debt-like instruments. Fixed
claim instruments include Murabaha, Ijarah, Salam, and Istisna, among others.
Exhibit 15: Key Islamic Banking Financing Products across Geographies
Product/Process Middle East North Africa Malaysia Indonesia
Monetization Salam structure is Both Tawarruq and

Very popular scheme
products (Cash preferred as Tawarruq Salam structure is Salam structures are
based on Tawarruq
finance based on is discouraged by preferred not approved by
concept
Tawarruq and Salam) scholars scholars
Standard features,
Vehicle Financing
Standard Offering Standard Offering Standard Offering some are managed by
(Murabaha and Ijarah)
multi-finance outfits
House Financing
Only Ijarah and Only Ijarah and Only Murabaha and Only Ijarah and
(Murabaha, Ijarah and
Diminishing Musharakh Diminishing Musharakh Diminishing Musharakh Diminishing Musharakh
Diminishing
are popular are popular are popular are popular
Musharakh)
Popular, as a form of Popular form of

Pawn Broking
Prohibited product Prohibited product personal financing with financing with gold as
(AlRahnu)
gold as collateral collateral
Equipment/Industrial
leasing (Operating / Operating and financial Operating and financial
Mostly financial lease Mostly financial lease
Financial) based on leases are popular leases are popular
Ijarah concept
Plant/Construction
Both structures used
financing using Forward Ijarah is Istisnaq and forward Istisnaq structure is
but forward Ijarah is
Istisna and forward Popular Ijarah are prevalent more popular
popular
Ijarah
Project Financing
based on Musharakah Banks not keen to offer Popular form of
Popular form of financing Popular form of financing
and Dim Musharakah as deemed too risky Financing
and Mudharabah
Working capital
Mudharabah and Mudharabah and Mudharabah and
financing based on
Musharakah offered but Musharakah offered but Only Tawarruq is being Musharakah offered but
Tawarruq,
not Tawarruq as it is not Tawarruq as it is offered by banks not Tawarruq as it is
Mudharabah or
prohibited prohibited prohibited
Musharakah
Source: Islamic Banking Processes and Products, Oracle Financial Services
Performance of Islamic Banking Financing
Islamic banks have evolved significantly over the past few years, and have reached a point
where they have a product to match almost every conventional banking product. Paving way
for the future of Islamic banking, industry leaders are now also turning their attention towards
sustainable finance by rolling out value products that help make a difference in the society.
This includes channeling finance towards activities that benefit the society and the
environment, while also catering to higher growth for the companies. In the long run, this
move will also help in mitigating the overall risk that stems not only from the social and
environmental impacts, but also from monetary and financial instability.
Exhibit 16: Share of Islamic Banking Financing of Total Financing for Select Economies (2018-2020)
Source: Saudi Central Bank, Kamco Invest, Bank Negara Malaysia, Qatar Central Bank, Central Bank of the UAE, Central Bank of Bahrain
Saudi Arabia accounted for the largest share (82.0%) of Islamic bank’s financing of any
Saudi Arabia accounted for the
country where conventional and Islamic banks run side-by-side. Islamic financing value in
largest share (82.0%) of
the Kingdom reached SAR 1,461,902 million (US$ 394,713 million) in 2020, up 16.7% y-o-
Islamic bank’s financing; It
y51. While the bank’s financial metrics deteriorated slightly due to the pandemic, they
recorded 16.7% y-o-y growth in remained sound overall aided by larger retail franchises supporting higher margins, a lower
2020 cost of funding and better asset quality52. Islamic banks financing in the UAE grew 6.8% in
in 2020 to AED 391.4 billion (US$ 105.7 billion) as against a fall in conventional banking53.
However, Islamic banks’ financing impairment charges (FICs) to average-gross-financing
ratio remained elevated with high provisions due to the pandemic54. The country’s Islamic
financing share of the total, which was on a decline between 2017 and 2019, made a
recovery in 2020 to 22.0%55. Islamic bank financing in Oman constituted 16.3% of the total
financing in 2020. The Sultanate reported 9.5% y-o-y growth in financing in 2020 to OMR
4,344.7 million (US$ 11,296.2 million)56, primarily driven by the rising demand for Islamic
products, support from Islamic windows of conventional banks offering Islamic products and
supportive regulations57. Outside the GCC, Islamic banks’ financing in Malaysia grew 8.5%
y-o-y during 2020 to MYR 670,523.9 million (US$ 159,719.9 million)58, outpacing the growth
in conventional banks (0.6%). Malaysia’s Islamic financing share of the total has been on
the rise (36.6% of the total in 2020 compared to 30.6% in 2017) driven by household
financing and banks that promoted Islamic products as part of the ‘Islamic First’ strategy.
According to Fitch Ratings, penetration of Islamic finance is likely to continue to rise
supported by economic recovery, a conducive regulatory environment, and banks that
continue to promote Islamic products59.
51
52
Source: “Saudi Islamic Banks: 2020 Results Dashboard”, Fitch Ratings, March 30, 2021
53
54
Source: “UAE Islamic Banks Dashboard: 2020 Results”, Fitch Ratings, June 16, 2021
55
Source: UAE Central Bank: Quarterly Economic Review
56
57
Source: “Oman's Islamic Banking Growth to Continue Despite Pandemic”, Fitch Ratings, March 23, 2021
58
59
Source: “Malaysia's Islamic Banking Sector Continues to Expand Despite Pandemic”, Fitch Ratings, Februaru 28,
2021
Among the various financing products offered by the Islamic banks, Murabaha has grown to
become a very popular tool of financing60. This is largely due to its simplicity and flexibility
in offering short term financing to small, medium, commercial as well as corporate entities61.
Majority of the top Islamic banks in GCC have recorded double-digit growth for Murabaha in
2020. Mudarabah, on the other hand, is still in infancy likely due to operational difficulties
and principal-agent problems occurring due to the inbuilt structure of the instrument62.
Exhibit 17: Growth of Financing Products by Top Islamic Banks in GCC (in US$ billion, 2019-20)
Al Rajhi Bank
2019 2020 Y-o-Y Growth
Mutajara 11.23 10.05 -10.45%
Murabaha 4.65 5.31 14.17%
Others 51.54 69.88 35.59%
Total 67.41 85.24 26.45%
Kuwait Finance House
Murabaha and Wakala 30.19 34.47 14.2%
Istisna and Other Receivables 0.30 0.29 -2.7%
Others 6.59 7.04 6.7%
Total 37.08 41.80 12.7%
Qatar Islamic Bank
Murabaha 22.32 22.32 17.7%
Musawama 4.55 4.55 -9.7%
Ijarah Muntahia Bittamleek 5.73 5.73 5.7%
Istisna 0.23 0.23 14.0%
Mudaraba 0.00 0.00 -74.3%
Others 0.57 0.57 -35.8%
Total 33.40 33.40 9.4%
Abu Dhabi Islamic Bank
Murabaha 14.20 13.80 -2.8%
Mudaraba 0.01 0.01 -45.2%
Wakala 0.20 0.30 51.2%
Istisna 0.03 0.03 -1.1%
Others 0.04 0.02 -60.0%
Total 14.48 14.14 -2.3%
Alinma Bank
Murabaha 5.03 5.65 12.3%
Ijara 9.43 10.86 15.1%
Bei Ajel 11.72 14.22 21.3%
Others 0.10 0.19 83.4%
Total 26.29 30.91 17.6%
Masraf Al Rayan
Murabaha 14.57 14.89 2.2%
Ijara 4.16 4.99 19.8%
Istisna 0.27 0.31 12.6%
60
Source: “Mostly Used Islamic Finance Instrument: Murabaha”, Mondaq, November 23, 2015
61
Source: “Murabaha-Islamic Banking”, Soneri Bank
62
Source: “Hindrance of Mudharabah Financing: A Study from Islamic Banking Industry of Pakistan”, International
Journal of Islamic Banking and Finance Research, November 10, 2018
Musharkah 1.70 1.64 -3.5%
Others 0.10 0.11 3.8%
Total 20.80 21.92 5.4%
Source: Company Financial Reports; Annual Reports
The Islamic banking financing has continued to outperform the conventional banking (both
national and foreign) in the GCC. This is reflected by growth witnessed in the total loan
books of majority of the top Islamic banks in the region by asset size. The retail focus of
Islamic banks in the GCC countries provides greater stability for their funding profiles and
hence typically offers a significant advantage over their conventional peers in terms of
liquidity coverage ratio (LCR). GCC banks, which are more reliant on corporate deposits
and institutional funding display lower LCRs because of the higher outflow rates that their
funding base attracts63. This allowed the Islamic banks to remain resilient despite the
economic downturn caused by the pandemic in 2020. Moreover, the share of Islamic
financing assets of the total financing assets increased during the year. Moody’s expects
this growth to continue in 2021 and mergers between Islamic and conventional banks in the
GCC, with Islamic banks as the surviving entity, to drive further one-off increases in assets64.
Within the region, Islamic banks have outperformed conventional banks across all countries,
except the UAE, in terms of asset size growth between 2018 and 2019.
Amid poor performance by majority of the conventional financial institutions, especially

Islamic banking financing has
during the global financial crisis, Islamic Banking institutions have stood resilient globally.
continued to outperform the The inherent structure of such banks, which call for asset-backed financial products,
conventional banking in the maintaining profit-equalization reserves, and withholding more liquidity, aid them in times of
GCC nations market distress. While the risk profiles for the two are different, Islamic banks exhibit lower
hazard rates on an average, as compared to conventional banks. For Islamic banks, the
higher the leverage and higher the net interest margin, the higher the survival probability,
while the same is generally negative for conventional banks. However, Islamic banking's
heavy reliance on cash reserves and use of commodities for collateral makes them relatively
more vulnerable to high inflation and real economic activity65.
Exhibit 18: Conventional vs Islamic Banking Assets by Exhibit 19: Conventional vs Islamic Banking Assets by
Share (2020) Growth (2019-2020)
Source: Saudi Central Bank, Kamco Invest, Qatar Central Bank, Central Bank of Source: Saudi Central Bank, Kamco Invest, Qatar Central Bank, Central Bank of
UAE, Central Bank of Bahrain, Central Bank of Oman UAE, Central Bank of Bahrain, Central Bank of Oman
63
Source: “GCC Islamic banking system outpaces conventional banks”, Al Arabiya, September 2016
64
Source: “Islamic financing growth to outpace conventional lending in GCC, core Islamic markets in 2021”, Gulf News,
February 27, 2021
65
Source: “Are Islamic banks inherently more stable than conventional banks”, Cass Business School, April 25, 2016
2.2 Sukuk
Overview
Sukuk is the flagship Islamic Capital Market (ICM) instrument and one of the fastest-growing
The global market for sukuk
sector of the Islamic finance industry. The financial crisis of 2008 played an influential role
has developed significantly
in propelling the instrument towards prominence, as it highlighted flaws in the conventional
and in 2019, it contributed 19%
system and urged investors to consider sukuk as a viable financing route66. Since then, the
to global Islamic finance global market for sukuk has developed significantly and in 2019, it contributed 19% to global
industry Islamic finance industry. The better financing conditions in general have supported the
market, but growth for the large part, has been driven by increased sukuk issuances for the
purpose of liquidity management and also for financing fiscal deficits of governments in
various jurisdictions67. Additionally, the market has also grown in terms of investor base,
which was initially limited to just financial institutions. This in turn, has encouraged new and
diverse range of issuers including from Takaful sector, aircraft financing, etc. to tap the
market for different purposes such as project financing, infrastructure development, among
others. Product diversification and development of Basel III-compliant sukuk, Fin-tech sukuk
or block-chain sukuk have also demonstrated the sector’s ability to rapidly innovate and
create new opportunities. Furthermore, the market has made huge strides towards the goal
of sustainable development in recent years, aligning investment policies and practices
towards those that can achieve social development with environmental protection. The
concept of ‘green sukuk’ and ‘socially responsible sukuk’ was founded on such values, while
sukuk financing to support SMEs has also gained momentum in the past few years68.
Sukuk Outstanding
Total sukuk outstanding reached US$ 538 billion in 2019, accounting for 19% of the total
The sector has grown at a
global Islamic finance industry. The sector has grown at a CAGR of 12.5% between 2014
CAGR of 12.5% between 2014
and 2019, mainly driven by strong performance in domestic market, which reflects increased
and 2019
confidence in the instrument over the years.
Exhibit 20: Sukuk O/s (US$ billion, 2014-2019) Exhibit 21: Sukuk O/s by Entity Status (2019)
Source: ICD-Refinitiv Islamic Finance Development Indicator Source: IIFM Sukuk Report
Malaysia, Saudi Arabia and The top three countries – Malaysia, Saudi Arabia and Indonesia together accounted for
Indonesia accounted for 77.5% 77.5% or US$ 417 billion of the global market. Their market share amounted to US$ 242
of the global market billion, US$ 118 billion, and US$ 57 billion, respectively. As of 2019, there were 3,420 sukuk
66
Source: Thenews.com- The rise of Sukuk
67
Source: Islamic Financial Services Industry Stability Report 2020, IFSB, July 2020
68
Source: IIFM Sukuk Reports (multiple editions), International Islamic Financial Market (IIFM)
outstanding globally. Malaysia accounted for the highest number of sukuk outstanding at
2,576, followed by 288 in Indonesia and 110 in Saudi Arabia. Of the total sukuk outstanding
in 2019, sovereign leads other entities in both the domestic and international markets in
terms of value, followed by corporate, quasi-sovereign and financial institutions (FIs).
Sukuk Issuances
Demand for sukuk continues to outstrip supply and the sector surpassed the US$ 100 billion
2019 saw the market close with
in annual issuances in three consecutive years from 2012 to 201469. In 2015, the market
a record sukuk primary market
witnessed a decline due to drop in oil prices, weak global economy, tight supply of liquidity,
issuance amounting to US$ possibility of increase in reference rate and slowdown in China70. However, since 2015, the
145.7 billion sector has been on an upward trajectory until the slowdown in 2018 due to fall in issuances
in the international market amid global economic and financial uncertainties71. In 2017, the
market made several new developments with the issuance of ‘green sukuk’ in Malaysia72
followed by the first-ever blockchain-based sukuk issued in Indonesia by Blossom Finance
in 201873. As a result, 2019 saw the market close with a record sukuk primary market
issuance amounting to US$ 145.7 billion, resulting in an increase of 18.3% as compared to
2018. The steady issuance volume during 2019 was mainly due to sovereign sukuk
issuances from the GCC, Asia, Africa and other jurisdictions. Moreover, the value of
issuances has increased by 115% over the past five-years from US$ 67.8 billion in 2015 to
US$ 145.7 billion in 2019. The total number of sukuk issuances rose to 1,267 during in 2019
from 1,235 in 2018. Nevertheless, decisions by major borrowers to tap the market are still a
significant determinant of sukuk volumes74. For example, Saudi Arabia priced a US$ 2.5
billion 10-year issue In October 2019, as part of its systematic efforts to diversify its budget
financing and help develop the regional Shariah-compliant debt capital markets.
The entry of new issuers and The entry of new issuers and investors over the years has expanded the sukuk market
beyond traditional Islamic jurisdictions to regions such as the US, Europe, Africa and other
investors over the years has
CIS countries75. In 2014, particularly several non-Muslim countries issued their debut sukuk,
expanded the sukuk market
including Hong-Kong, Luxembourg, South Africa, Senegal and the United Kingdom.
beyond traditional Islamic Malaysia and the GCC countries, however, retain their positions as largest issuers of sukuk
jurisdictions in terms of both value and volume. Malaysia accounted for 43.7% or US$ 63.6 billion of total
global sukuk issuances in 2019, followed by Saudi Arabia with a share of 19.5% or US$ 28.5
billion. On the other hand, Indonesia and Turkey have become the fastest-growing sukuk
markets and Sudan is the most prolific issuer of sukuk from the Africa region76.
The domestic sukuk issuances increased by 18.9% in 2019 to reach US$ 107.3 billion from
Domestic sukuk issuances
their 2018 level of US$ 90.2 billion. Malaysia contributed US$ 54.0 billion to the 2019
increased by 18.9% in 2019 to
issuances, followed by Saudi Arabia (US$ 18.9 billion), Indonesia (US$ 17.3 billion and
reach US$ 107.3 billion while
Turkey US$ 8.8 billion). On the other hand, total international sukuk issuances stood at US$
international sukuk issuances 38.5 billion in 2019, a 16.6% increase over 2018. 2019 was a landmark year with the highest
rose 16.6% to US$ 38.5 billion value of international sukuk issuance recorded since the inception of the sukuk market.
69
Source: IIFM Sukuk Report 2016, International Islamic Financial Market (IIFM)
70
71
Source: IIFM Sukuk Report 2015-2019, International Islamic Financial Market (IIFM)
72
73
74
Source: “Sukuk Issuance Rose in 2019 as Diversification Continues”, Fitch Ratings, February 11, 2020
75
76
Exhibit 22: Sukuk Issuances (US$ billion, 2015-2019)
Source: IIFM Sukuk Report
Short-term sukuk issuances have played an important role in addressing the liquidity needs
of Islamic financial institutions. Short-term ṣukuk issuances has been on a decline since
2015 but showed a notable reversal in 2019 with several countries issuing short-term sukuks
of less than one year for liquidity management. Malaysia dominates the short-term sukuk
market followed by Bahrain, while countries like Turkey, Indonesia, Brunei, Sudan, Gambia
are regular issuers in the market77. Between 2015 and 2019, short-term issuances
amounted to US$ 90.1 billion in domestic market as compared to US$ 43.9 billion in the
international market. On the other hand, long-term issuances amounted to US$288.9 billion
in domestic market compared to US$118.3 billion in international market.
Sukuk Issuances by Region
Asia & Far East region accounted for the largest share of 69.3% or US$ 191.5 billion of
Asia & Far East region
domestic sukuk issuances between 2017 and 2019. The market was largely driven by
accounted for the largest
Malaysia - a pioneer and a long-standing leader in the domestic market. The country
share of 69.3% of domestic
accounted for 75.7% or US$144.9 billion of the region during the three-year period with
sukuk issuances between 2017 corporate sukuk issuances continuing to surpass conventional bond issuances as the
and 2019 primary mode of raising capital78. GCC had the second largest share of 23.7% or US$ 65.7
billion of domestic sukuk issuances during the same period with Saudi Arabia leading the
region with a share of 79.8% or US$ 52.4 billion followed by Bahrain with a share of 10.0%
or US$ 6.4 billion. In 2019, Saudi Arabia financed 50% of its fiscal deficit through sukuk and
a majority of them were issued in the domestic market. Globally, Malaysia dominates with a
share of 52% of domestic issuances and is followed by Saudi Arabia with a share of 19%
while other countries such as Bahrain, Indonesia and Turkey have continued to improve
their share over the three year period.
77
78
Exhibit 23: Domestic Issuances by Region (2017-2019) Exhibit 24: International Issuances by Region (2017-2019)
Source: IIFM Sukuk Report Source: IIFM Sukuk Report
GCC and Middle East GCC and Middle East dominated issuances in the international market with a share of 58.1%
dominated issuances in the or US$ 63.3 billion issuances between 2017 and 2019. For the period, Saudi Arabia led the
international market with a GCC region with a share of 47.9% or US$ 30.8 billion followed by the UAE with a share of
33.1% or US$ 21.0 billion, and Oman with a share of 6.0% or US$ 3.5 billion. Ṣukuk
share of 58.1% issuances
issuances from the GCC have been generally taken up by a wider group of investors
between 2017 and 2019
internationally rather than regional investors. The increased uptake by international
investors not only reflects the prevailing supply/demand imbalance of ṣukuk, but also the
low interest rate environment, which has resulted in a renewed risk appetite and more capital
flows to the GCC markets79.
Sukuk Issuances by Entity Type
Over the five-year period, the contribution of Domestic Sukuk issuances have increased
Over the five-year period, the
from 67.7% to 73.6% of global issuances. For the domestic market, sovereign issuances
contribution of Domestic
have consistently dominated the market as governments across jurisdictions have
sukuk issuances have
increasingly used sukuk to finance their budget while the investors’ need to include ‘risk-
increased from 67.7% to 73.6% free’ assets in their portfolios has maintained the growth80. The growth in sovereign issuance
of global issuances has played a critical role in providing a strong foundation to the global sukuk market.
Sovereign issuances rose from 55% of total domestic issuances in 2017 to 65% in 2018.
On the other hand, share of corporate issuances have witnessed a decline from 37.0% in
2015 to 15.0% in 2019 whereas Quasi sovereigns and FIs have steadily increased their
share during the period. In 2019, domestic sovereign issuances, quasi-sovereign issuances,
FIs and corporate issuances amounted to US$ 63.3 billion, US$ 15.0 billion, US$ 12.9 billion
and US$ 16.1 billion, respectively. For the international market, quasi-sovereign issuances
accounted for 41% of the market equating to US$ 15.8 billion in 2019. The share of
sovereign, corporate and FIs issuances have shown an uneven trend over the past five-
years and accounted for 30%, 13% and 16%, respectively, as of 2019.
79
80
Exhibit 25: Domestic Issuances by Entity (2015-2019) Exhibit 26: International Issuances by Entity (2015-2019)
Source: IIFM Sukuk Report Source: IIFM Sukuk Report
For both the international and domestic market, corporate issuances have followed a
pattern, which shows that issuances were impacted during economic downturn and were
relatively stable during favorable economic conditions. This can be largely attributed to the
corporate sector being averse to raising capital during economic slowdown as they remained
at the forefront of reducing spending or delaying projects.81 Although corporate issuances
have picked up over the years, they remain below potential outside of Malaysia. In quasi-
sovereign issuances, Islamic Development Bank, Saudi Electricity Company, PLUS Berhad,
and Saudi Aramco are examples of few entities that have participated in the sukuk market
during the years and lent support to the market82.
Sukuk Issuances by Structure
The diversity in the types of Shariah-compliant contracts used for ṣukuk issuance has
Increasing utilization of profit-
increased over the last five-years. There has been a gradual shift to Sukuk Al Wakalah
sharing contracts was contracts from Sukuk Al Murabah contracts, which had a share of 43% (US$ 29.1 billion) in
observed among new 2015 but constituted only 22.9% (US$ 33.3 billion) of total sukuk issuances in 2019. Sukuk
issuances in 2019 compared to Al Wakalah contracts, on the other hand, dominated the market with 23.6% share (US$ 34.3
preceding years billion) in 2019. This is followed by other contracts such as Sukuk Al Ijarah, which had a
share of 17.5% (US$ 25.45 billion) and Hybrid Sukuk (Murabah/Mudharabha) with a share
of 15% (US$ 21.7 billion) in 2019. The majority of ṣukuk issuances continue to be based on
debt or lease-type contracts. This suggests that the market still favors contract types that
are considered to have more stable return profiles. Profit-sharing contracts currently
constitute a relatively small proportion of the total volume of issuances. However, increasing
utilization of profit-sharing contracts was observed among new issuances in 2019 compared
to preceding years83.
81
82
83
Exhibit 27: Sukuk Issuances by Structure (2019)
Source: IIFM Sukuk Report 2020
Demand for Ṣukuks
The rise in demand for sukuks from investors have led to a growth trajectory in terms of size
Ethical and responsible and issuances over the past decade, especially over the last five years84. Sukuk issuances
investing elements of Islamic have diversified over the last few years, which had been historically dominated by Malaysia
finance products have and Saudi Arabia. The investor base of sukuk has also diversified with a growing number of
attracted participation from sukuk funds and sub funds witnessing strong investment demand from fund managers85.
HNI and UHNI alongside non- The instrument has therefore emerged as a key fixed income asset class with an attractive
Muslim investors risk-return profile. Further, characteristics inherent to sukuk such as lower volatility,
attractive yields, improving liquidity and lower correlation to oil prices as compared to
conventional bonds have persuaded investors to include sukuk as an asset class in their
portfolio86. Sukuks can reduce risk and offer diversification benefits to portfolios alongside
exposure to Islamic countries87. The growing acceptance of such issuances from the Islamic
and non-Islamic jurisdictions coupled with positive regulatory developments have also been
instrumental in driving demand for sukuks88. This has resulted in diversification in investor
base from traditional Islamic banks to regional and international investors. Some of them
have also launched dedicated sukuk funds or sub-funds to invest in such instruments89.
Ethical and responsible investing elements of Islamic finance products have attracted
participation from high net-worth individuals (HNI) and ultra-high net-worth individuals
(UHNI) alongside non-Muslim investors. Such investors seeking to extend their investment
involvement in more sustainable areas of benefit to the planet and society have also helped
in broadening the investor base across the globe.
84
Source: “2020: A strong year for Sukuk”, Refinitiv, October 19, 2020
85
86
Source: “Opinion: why the future is bright for sukuk investment”, Arabian Business, June 22, 2020
87
Source: “Global Sukuk: An Increasingly Relevant Asset Class Amid Ongoing Uncertainty”, Franklin Templeton,
December 19, 2020.
88
Source: “Maintaining Sukuk’s Momentum”, Franklin Templeton, May 30, 2019
89
Source: “Sukuk Issuance Rose in 2019 as Diversification Continues”, Fitch Ratings, February 11, 2020
Green and SRI Sukuk Growing in Prominence
SRI Sukuk and in particular green sukuk have become the latest trends in Islamic Capital
Markets. As the world moves towards sustainable development, these instruments present
an opportunity to expand the universe of Islamic Finance if leveraged to their full potential.
In 2019, green sukuk issuances totaled US$ 4.4 billion, comprising of issuances from
Indonesia and GCC countries. The instrument continues to draw attention with several
countries already in the process of transforming their regulatory framework to allow for such
issuances. For instance, authorities in Kazakhstan and Uzbekistan are framing regulations
that will allow green sukuk to be issued.90 With the sukuk market fast expanding to regions
across the globe, the instrument could further aid in broadening the investor base by
attracting wealth from HNIs focused on financing green developments. Besides this,
COVID-19 has accelerated digital adoption in Islamic Finance and this is reflected in new
sukuk issuances in few countries. For example, Malaysia’s Ministry of Finance launched
first digital sukuk in August 2020 while Indonesia also issued retail sukuk worth US$ 342
million that can be subscribed through online channels to attract the younger generation91.
The COVID-19 pandemic has led to number of challenges including health crisis, disruption
Global sukuk issuances
in economic activity, and financial instability to an unprecedented level. The pandemic led
increased during 2020 amid
disruption in economic activity prompted governments to introduce unprecedented stimulus
steady issuances from
packages, which resulted in widening of fiscal deficit across major sukuk issuing sovereigns.
sovereigns to finance stimulus Despite the COVID-19 induced uncertainty, global sukuk issuances increased during 2020
packages in support of the amid steady issuances from sovereigns to finance stimulus packages in support of the
pandemic-ravaged economies pandemic-ravaged economies. Three major sovereign heavyweights - Indonesia, Malaysia
and Saudi Arabia – accounted more than 66% of global sovereign issuance in 202092. Within
the GCC, sukuk issuances saw strong momentum during the first three quarters of 2020 as
the decline in oil prices prompted a ramp-up in sovereign issuances. Similar to the other
major issuing sovereigns, higher issuances in the GCC was largely to support the stimulus
packages aimed at alleviating the economic ramifications of COVID-1993.
Strong Pre-Pandemic Dynamics
Risk appetite remained elevated during 2019 as rates of oversubscription were substantial,
reflecting the attractiveness of a diverse range of ṣukuk. This included Tier-1 ṣukuk and
green sukuk, as well as generally for both corporate and sovereign issuances of varying
maturities and credit quality. The high subscription rates for ṣukuk across a range of credit
ratings were largely a result of Central Bank policy shifts, as well as improving geopolitical
stability towards the end of the year94.
KIB’s (Kuwait International Bank) Tier 1 Sukuk was issued under Basel III Capital
Adequacy compliance to support its plans of capital diversification and expansion
strategy. It was oversubscribed nearly 15 times, which reflects the confidence of both
international (51% of investors) and regional investors in Kuwait’s Islamic banking sector.
The sukuk issued was based on the principle ‘Mudarabah’, by which banks provide
banking facilities to governments and companies. This highlights the growing importance
of sukuk as a core product of Islamic banking.95
90
91
92
Source: “Global sukuk issuance in 2020 fueled by sovereign stimulus packages”, RAM, April 01, 2021
93
Source: “Sukuk issuances beat 2019 record, fueled by COVID-19 crisis”, Zawya, January 21, 2021
94
95
Source: “KIB issues USD300 million AT1 Sukuk”, Kib Website, May 29, 2019
The Almarai corporate Sukuk worth US$ 500 billion was also oversubscribed by 11 times
and saw strong participation from the European (36%) and Asian (23%) accounts. The
sukuk also attracted more fund capital (60%) than banks (32%) while insurance and
pension funds picked up 4% and central banks and corporates took the rest 4% of
allocation. The sukuk marked the first corporate International sukuk of Saudi Arabia and
the issue, coupled with the blockbuster issuance from Saudi Aramco, set the stage for
other Saudi companies to enter the international market.96
The Sharjah Islamic Bank Sukuk was 10 times oversubscribed and follows the trend of
increased demand of bonds from the UAE as Dubai recovers from its debt crisis. The
issue coupled with the ESIC Sukuk issuance, which was oversubscribed 6.2 times, played
a crucial role in promoting the development of capital markets and Islamic finance in the
UAE.97
The green sukuk issued by the government of Indonesia, on the other hand, was
oversubscribed 3.8 times and displays the relatively strong international demand for the
instrument. The issuance was also in line with Indonesia’s goal to strengthen the global
Shariah financial market as well promote environmentally friendly green financing.98 Majid
Al Futtaim and Saudi Telecom Company were corporate entities that issued green sukuk
during the year, setting an example of growing commitment of GCC companies to support
the transition to a low carbon economy.
Exhibit 28: Demand Comparison for Select Ṣukuks Issued in 2019

Issue Size Tenure Oversubscription
Sukuk Name Issuer Type Rating
(US$ Million) (Years) (Times)
KIB Tier 1 Sukuk Perp 300 Corporate Perp A+ (Fitch) 15
Almarai Sukuk 03/24 500 Corporate 5 Baa3 (Moody’s) 11
Edra Solar 59.5 Corporate 18 AA2 (RAM) 11
Sharjah Islamic Bank Tier 1 Sukuk Perp 500 Corporate Perp BBB+ (Fitch) 10
QIIB Tier 1 Sukuk Perp 300 Corporate Perp A (Fitch) 9
Warba Bank 09/24 500 Corporate 5 Baa2 (Moody’s) 6.3
ESIC Sukuk 07/24 600 Corporate 5 Baa3 (Moody’s) 6.2
Aldar Sukuk 10/29 500 Corporate 10 Baa1 (Moody’s) 6
Majid Al Futtaim (MAF) Sukuk 05/29 600 Corporate 10 BBB (Fitch) 6
Saudi Government Sukuk 10/29 2,500 Sovereign 10 A+ (Fitch) 5
DIB Tier 1 Sukuk Perp 750 Corporate Perp A3 (Moody’s) 4.9
QIB Sukuk 03/24 750 Corporate 5 A1 (Moody’s) 4.1
Prasarana Malaysia Sukuk 08/34 202.7 Corporate 10 AAA (RAM) 4
Arabian Centres Company (ACC) Sukuk 11/24 500 Corporate 5 BB+ (Fitch) 4
Indonesia Green Sovereign Sukuk 08/24 750 Sovereign 5.5 Baa2 (Moody’s) 3.8
Saudi Telecom Co (STC) Sukuk (05/29) 1,250 Corporate 10 A1 (Moody’s) 3.5
CBB Sukuk 12/19 69 Sovereign 0.5 BB- (Fitch) 3
Masrak Al Rayan (MAR) Sukuk 11/24 500 Corporate 5 A1 (Moody’s) 3
Source: IFSB Stability Report 2020
96
Source: Bondsloans.com- Al
97
Source: Ddcap.com- ESIC Maiden US$600 mn Benchmark Sukuk is 6.2 times oversubscribed.
98
Source: Thejakartapost.com- Indonesia issue USD2 billion global green, regular Sukuk.
GCC Sukuk vs GCC Bonds
GCC fixed income issuances recorded growth of 22.9% y-o-y reaching US$ 141.4 billion
worth of issuances in 2019. Bond issuances increased by 23% y-o-y, at par with sukuk,
which grew by 22.8% y-o-y during 2019. Within GCC, UAE and Saudi Arabia remained major
issuers of sukuk in 2018 and 2019. At present, 50% of the region’s funding needs are met
by sukuk financing. However, for Saudi Arabia, sukuk issuances have surpassed bond
issuances in the past few years. Being a core Islamic Finance market, the Saudi Arabian
government has increasingly issued sukuk to access local investors in order to finance its
ambitious plans under the ‘Saudi Vision 2030’. COVID-19, recent collapse in oil prices and
the subsequent expansion in budget deficit have only added to this need. In 2017, the
country’s National Debt Management Center established the first-ever unlimited SAR-
denominated sukuk programme with an aim of diversifying its borrowing sources. Following
the program, Saudi Arabia’s financial institutions and corporates stepped up their sukuk
issuances in both domestic as well as International markets. Other countries in the GCC are
also likely to follow suite with majority of their local debt issuances being in sukuk99.
Exhibit 29: GCC Sukuk vs. Bond Issuances Size (US$ billion, 2018-2019)
Source: IIFM Sukuk Report, Kamco Invest
Growing importance of Green Sukuk
Green Sukuk is a Shariah-compliant instrument that is used to finance environmentally

Green Sukuk is still in the
sustainable initiatives. Such instrument may fund renewable energy production, waste
nascent stages of
management, sustainable agriculture, the construction of energy-efficient buildings, natural
development as issuers have resource management, or other endeavors that benefit the environment or mitigate climate
been largely constrained by a change risks. First introduced in 2017, green and socially responsible investing (SRI) Sukuk
shortage of certifiable green came to the fore in 2019 as governments and corporates stepped up efforts to achieve the
projects United Nations’ Sustainable Development Goals (SDGs), a trend which is expected to
accelerate in the years ahead. Although the market for green sukuk is relatively small
compared to its conventional peers, the instrument has garnered significant interest from a
broad-range of investors looking to invest in projects with solutions for low carbon. Within
99
the GCC, the increasing focus on renewable energy as underlined in the national power
strategies of different nations, will play an important role in boosting green sukuk
issuances100.
Green Sukuk is still in the nascent stages of development as issuers have been largely
constrained by a shortage of certifiable green projects. Moreover, sustained government
support and a conducive regulatory environment remains critical for the development of this
segment. For instance, Malaysia’s Securities Commission (SC) launched the SRI Sukuk
framework in 2014, which makes green sukuks issued under this framework compatible with
the International Capital Market Association’s Green Bond principles (GBP) - an
internationally accepted and widely used standard for the development of national green
bond guidelines. Indonesia too has established a regulatory framework for green bonds and
sukuk while the Dubai Islamic Economy Development Center (DIEDC) is working towards
promotion of green sukuk issuances in the UAE and create certification standards aligned
with Climate Bonds Standard and Certification Scheme101. Such efforts will play as a crucial
role for other countries to follow and develop their infrastructure in a way that will facilitate
green sukuk issuances.
The first green sukuk was The first green sukuk was issued in Malaysia in 2017 by Tadau Energy to finance a US$ 64
million 50 MW solar project and since then a handful of them have been issued in the
issued in Malaysia in 2017 by
country.102 These include Quantum Solar Park (Semenanjung) Sdn Bhd, PNB Merdeka
Tadau Energy to finance a US$
Ventures Sdn Bhd, Sinar Kamiri Sdn Bhd, and UiTM Solar Power Sdn Bhd. Indonesia issued
64 million 50 MW solar project the world’s first sovereign green sukuk in 2019 worth US$ 1.3 billion with investors
distributed around the globe (32% Islamic, 25% Asia, 15% EU, 18% USA, 10%
Indonesia)103. It was soon followed by another green sukuk worth US$ 750 million and both
the issuances were oversubscribed104. In 2019, Saudi Arabia’s Islamic Development Bank
(IsDB) became the first AAA-rated institution to issue a green sukuk worth EUR1 billion (US$
1.2 billion) under the Sustainable Finance Framework to finance climate change-related and
green projects among its member countries105. UAE based retail company Majid Al Futtaim
issued a green sukuk worth US$ 600 million in 2019 with a 10-year maturity106. IsDB issued
its debut sustainability sukuk valued at US$ 1.5 billion to support various social projects
undertaken by member countries affected by the COVID-19 pandemic. This was the first
ever AAA-rated sustainability sukuk to be issued on the global capital markets. Elsewhere,
Saudi Electricity Company raised US$ 1.3 billion from the sale of a dual-tranche green sukuk
in September 2020 to raise capital for various green projects such as smart meters. As of
July 2020, Nasdaq Dubai hosts six green and one sustainable sukuk with a total value of
US$ 6.6 billion including Indonesia’s sovereign green sukuk107. Overall, US$ 6.1 billion has
been raised through 12 unique green sukuk issuers from Indonesia, Malaysia, the UAE and
one multilateral development bank. US$-denominated issuances make up 65% of green
sukuk issuances, followed by Euro-denominated (18%), Ringgit-denominated (16%) and
Rupiah-denominated (1%)108.
100
Source: Islamic Finance Development Report 2019: Shifting Dynamics, ICD Refinitiv
101
Source: IIFM Sukuk Report 2018 & 2019, International Islamic Financial Market (IIFM)
102
Source: Gifiip.org- Green Sukuk Initiative
103
Source: Undp.org- Indonesia’s Green Bond and Green Sukuk Initiative
104
Source: Thejakartapost.com- Indonesia issues US$2b global green, regular Sukuk
105
Source: Isdb.org- Debut Green Sukuk
106
Source: English.alaraiya.net- Majid al Faittaim set to raise US$600 mn
107
Source: “Nasdaq Dubai welcomes listings of three Sukuk valued at USD 2.5 billion by Indonesian government”,
NASDAQ Dubai, July 1, 2020
108
Source: “Pioneering the Green Sukuk : Three Years On”, Trade Council, October 6, 2020
Exhibit 30: List of Green Ṣukuk Issuance (as of July 2020)
Amount
Issue Final
Issuer Issued Country Sector Structure
Date Maturity
($ Mn)
Renewable
Tadau Energy 58.4 Jul-2017 Malaysia Jul-2033 Al Istisna & Ijara
Energy
Renewable
Quantum Solar Park 235.9 Oct-2017 Malaysia Apr-2035 Murabahah
Energy
Murabahah, Al-
PNB Merdeka Ventures (Tranche 1) 169.9 Dec-2017 Malaysia Dec-2032 Real Estate
Wakalah
Renewable Wakala Bi-Al
Sinar Kamiri 62.8 Jan-2018 Malaysia Jan-2036
Energy Istithmar
Al Wakala Al
Republic of Indonesia (SBSN INDO III) 1,250.0 Mar-2018 Indonesia Mar-2023 Sovereign
Istithmar
Renewable
UITM Solar Power 56.6 Apr-2018 Malaysia Apr-2036 Murabahah
Energy
Al Wakala Al
Republic of Indonesia (SBSN INDO III) 750.0 Feb-2019 Indonesia Aug-2024 Sovereign
Istithmar
Renewable Murabahah, Al-
Pasukhas Green Assets 4.2 Feb-2019 Malaysia Feb-2029
Energy Wakalah
Wakalah, Al
MAF Sukuk Ltd 600.0 May-2019 UAE May-2029 Real Estate
Murabaha
Murabahah, Al-
PNB Merdeka Ventures (Tranche 2) 107.5 Jun-2019 Malaysia Dec-2032 Real Estate
Wakalah
Telekosang Hydro 112.1 Aug-2019 Malaysia Aug-2037
Energy Wakalah
Wakalah, Al
MAF Sukuk Ltd 600.0 Oct-2019 UAE Feb-2030 Real Estate
Murabaha
Saudi
The Islamic Development Bank (IsDB) 1,100.6 Nov-2019 Nov-2024 Green Projects Wakalah
Arabia
Republic of Indonesia (Sukuk Tabungan Sovereign
86.2 Nov-2019 Indonesia Nov-2021 Al-Wakalah
Seri) (Retail)
Murabahah, Al-
PNB Merdeka Ventures (Tranche 3 105.3 Dec-2019 Malaysia Dec-2032 Real Estate
Wakalah
Al Wakala Al
Republic of Indonesia 750.0 Jun-2020 Indonesia Jun-2025 Sovereign
Istithmar
Leader Energy 62.7 Jul-2020 Malaysia Jul-2038
Energy Wakalah
Source: World Bank Knowledge & Research October 2020
2.3 Islamic Funds

Islamic Funds’ Assets
Islamic Funds’ assets grew at Total assets for Islamic investment funds recorded its highest growth in the last decade,
rising 29.6% to US$ 140 billion from US$ 108 billion in 2018. The sector grew at a CAGR of
a CAGR of 16.2% between
16.2% between 2014 and 2019, the fastest pace among all Islamic instruments during the
2014 and 2019, the fastest
period. However, it accounts for 5% of the Islamic finance industry. The average size of
pace among all Islamic assets for Shariah-compliant investment funds is small and only around 2% of funds hold
instruments during the period assets of US$ 1 billion or above, while 46% of funds have assets of less than US$ 10 million.
Exhibit 31: Islamic Funds Assets (US$ billion, 2014-2019)
Source: IFSB Stability Report
The assets of Islamic funds witnessed the weakest performance in a decade during 2018,
falling by 10.0% y-o-y amid subdued global economic conditions in addition to the poor
performance of Asian equities (the stock markets of Malaysia and Indonesia suffered losses
during the year). The market rebounded in 2019 and 127 funds were launched during the
year, including Shariah-compliant mutual funds, pension funds, insurance funds, and
exchange-traded funds (ETFs). This signals a positive trend in the sector that has the
potential to grow as demand for Shariah-compliant investments rises. However, at present,
Islamic funds remains a niche segment of the Islamic finance industry and is highly
concentrated in a few jurisdictions.
Islamic Funds by Asset Classes
Accounting for 35%, equity- Islamic funds are currently primarily concentrated across equity, money market and
commodity asset classes. Accounting for 35%, equity-based funds has maintained its
based funds has maintained
position as the most preferred asset class for Islamic funds, followed by money market (27%)
its position as the most
and commodity-based funds (23%). Commodities-focused funds were the top performers in
preferred asset class for 2019, largely supported by a recovery in hydrocarbon prices and a rally in gold and
Islamic funds palladium. Mixed allocation funds, which provide diversification across asset classes,
provided the second-highest average returns in 2019109. However, the share of money
market-based funds rose in 2019 amid rising uncertainty in the global equity markets,
leading to risk-averse retail investors switching to the safety provided by the asset-class.
Between 2014 and 2019, equity, money market and commodity-market Islamic funds
amounted to US$ 235.3 billion, US$ 161.6 billion, and US$ 93.4 billion, respectively110.
109
110
Source: Islamic Finance Development Reports 2019 and 2020, ICD Refinitiv
Exhibit 32: Islamic Funds by Asset Class (2019)
Source: IFSB Stability Report
In October 2020, the world’s first actively managed global equity Sharia-compliant ETF was
listed on the London Stock Exchange. The ETF, which currently invests in 23 companies
specializing in healthcare, consumer staples and IT, targeted institutional investors such as
pension funds, large family offices in the UAE and wider Middle East. The Almalia Sanlam
Active Shariah Global Equity UCITS ETF aims to achieve capital growth over the medium
to long by investing in companies with high returns on capital and low leverage111.
Islamic Funds by Region
Islamic Funds assets are largely concentrated in the GCC and SE Asian markets. The GCC
The GCC accounted for the
accounted for the highest share of Islamic funds by assets between 2014 and 2019. In 2019,
highest share of Islamic funds
Saudi Arabia, Malaysia and Iran together accounted for 82.0% or US$ 114.1 billion of total
by assets between 2014 and Islamic funds’ assets. The market share of other major countries such as Luxembourg, US,
2019 Indonesia and Pakistan amounted to US$ 5.9 billion, US$ 5.5 billion, US$ 4.1 billion and
US$ 2.2 billion, respectively, during the year. This shows that the sector has made little
progress in terms of expanding to other regions. However, a large proportion of Islamic funds
have a global investment focus, followed by concentrated investments in Saudi Arabia and
Malaysia. This can be largely attributed to uncertain economic environment that encouraged
funds to diversify their portfolio and increase their exposure to different markets, outside the
core jurisdiction of the MENA region.
111
Source: “World's first active sharia-compliant global equity ETF lists on London Stock Exchange”, The National
NEWS, September 29, 2020
Exhibit 33: Islamic Funds by Region (2014-2018) Exhibit 34: Islamic Funds by Region (2019)
Source: IFSB Stability Report Source: IFSB Stability Report
Pandemic-led Growth in ESG-Shariah Funds and Digital Solutions
The pandemic has brought ESG considerations to center stage and countries worldwide
are increasingly recognizing its importance in creating a sustainable ecosystem.
Meanwhile, the case for corporations to shift to clean energy for their business operations
has also grown stronger with COVID-19 and oil price collapse112. The trend will shape the
future of Islamic Finance sector as well with more Shariah-ESG funds likely to be launched
in coming years. Many countries have taken initiatives in this regard and Malaysia leads
them in the ESG investment space. For example, BIMB Investment Management Bhd
(BIMB), an arm of Bank Islam Malaysia, launched its Global Shariah-ESG Equity fund for
retail investors in October 2019. The Public e-Islamic Sustainable Millennial Fund was
launched by Public Mutual, and an Islamic-ESG fund- the Maybank Global Sustainable
Equity-I Fund was launched by Maybank Asset Management in 2020113.
Equity Markets
Shariah-based equity funds have grown in terms of size and number of funds over the past
Shariah-based equity funds
decade. Initially, the Islamic equity funds witnessed a number of challenges, especially lack
have grown in terms of size
of investment opportunities and financial assets coupled with underperformance compared
and number of funds over the
to conventional funds. However, the real awakening of Shariah-compliant equity funds was
past decade during the global financial crisis of 2008-09, where such investment principles proved to
significantly outperform the conventional funds. Since then, the demand for Islamic equity
funds have been overwhelming and only expected to drive the growth in total Islamic assets.
112
Source: “ESG in the time of COVID-19”, S&P Global, April, 2021
113
Exhibit 35: Islamic Equity Indices (2011-2021 YTD)
Source: S&P Global

Note: Data as of 27th April, 2021
The Shariah-compliant equity investing provides protection against the downward risk, as
During 2015 and 2020, the
evidenced during the COVID-19 pandemic. In March 2020, the S&P Global 1200 dropped
conventional S&P Global 1200
by 23% y-o-y whereas S&P Global 1200 Shariah recorded a fall of 17% y-o-y. Between 2015
grew at a CAGR of 9.5%
and 2020, the conventional S&P Global 1200 grew at a CAGR of 9.5% compared to a growth
compared to 13.6% by S&P of 13.6% CAGR by S&P Global 1200 Shariah during the same period. In terms of absolute
Global 1200 Shariah during the return, the conventional S&P Global 1200 rose by 57.3% compared to 88.9% in S&P Global
same period 1200 Shariah, an outperformance of 31.6% during the period. Between 2015 and 2016, the
Shariah index has outperformed the conventional index every year with the exception of
underperformance in the year 2016.
Social and economic uncertainties arising from COVID-19 pandemic led to sporadic shifts
in equity markets globally during 2020. The S&P Global 1200 dropped by 31.9% YTD by
Strategic sector allocation March-end 2020 (year low), while the S&P Global 1200 Shariah was down by 28.0%,
(overweight on technology and outperformance of 3.9% during the period. Despite the challenges and sharp decline until
healthcare sector) contributed March 2020, global equity markets closed the year on a positive note. From the lows of
to the outperformance of March 2020, the S&P Global 1200 rose by 66.1% at the end of 2020, while the S&P Global
Shariah-compliant indices 1200 Shariah was up by 70.2%, outperformance of 4.0%. Two factors contributed to the
outperformance of Shariah-compliant indices, sector allocation (overweight on technology
and healthcare sector) and exclusion of highly leveraged companies.
The number of constituents of S&P Global 1200 were 1,222114 in 2020, while it was 479115
for the S&P Global 1200 Shariah. However, the average market capitalization of the Islamic
Index was US$ 63.6 billion compared to US$ 46.6 billion in 2020116. Similarly, other indices
such as Dow Jones Islamic Market World and S&P Global BMI Shariah also have a higher
market capitalization than conventional benchmarks, such as Dow Jones Global and S&P
Global BMI respectively. This can be attributed to higher weightage of technology stocks,
114
Source: S&P Global 1200 Index
115
Source: S&P Global 1200 Shariah Index
116
Source: S&P Global
which witnessed significant increase in market capitalization, which are also amongst the
world’s largest companies by market capitalization.
Exhibit 36: Number of components and Market Cap (2020) Exhibit 37: Sector Breakdown (2020)
Source: Spglobal.com Source: Spglobal.com
The sector breakdown of S&P Global 1200 and S&P Global 1200 Shariah substantiates the
The Information Technology
outperformance recorded over the years. During any crisis, cyclicals and highly leveraged
sector accounts for 34.4% of
companies are likely to witness significant selling pressure, which are excluded under the
the Islamic index compared to
Shariah-compliant equities or funds based on Islamic principles. The Information
22.2% for the conventional Technology sector accounts for 34.4% of the Islamic index compared to 22.2% for the
benchmark conventional benchmark. Healthcare is another sector with noticeable change in sectoral
allocation between the Islamic and non-Islamic indices. Within the Financial sector, Shariah-
compliant companies would mainly comprise of Islamic banks, which only account for 0.6%,
while the conventional index accounts for more than 13.0% of the total index representation.
Therefore, these prominent changes in sector allocation has played out over the years and
becomes more apparent during global crisis.
2.4 Takaful
Overview
Takaful represents a Shariah-compliant insurance framework that highlights harmonious
living and cooperation within a community. Under this system, members, or policyholders,
mutually contribute an amount of money on a regular basis, which goes towards protecting
each other against unexpected circumstances through financial support in the event of a
loss, damage or theft. Similar to conventional insurance, these contributions are then pooled
and managed by a Takaful management firm, and the surplus is employed for making
investments, which assist in earning a higher profit for the policyholders.
Exhibit 38: Global Takaful Market Size (US$ billion, 2014-2019)
Source: ICD Refinitiv
Takaful Assets
The global Takaful market has grown at a steady pace of 7.2% CAGR between 2014 and
The global Takaful market has
2019. After a relatively muted period, the Takaful market saw a turnaround in 2019 with a
grown at a steady pace of 7.2%
10.9% market expansion over 2018 to reach US$ 51 billion. With over 336 Takaful operators
CAGR between 2014 and 2019;
across the globe, the sector accounts for just 2% of the Islamic finance industry117. The
The sector accounts for just growing popularity of tech-enabled services and rising digitization across the globe resulted
2% of the Islamic finance in the emergence of fresh markets such as InsurTech and FinTech, opening up a cohort of
industry new avenues and opportunities within the Takaful market. These avenues are well-poised
to transform the industry and provide it with the much-needed boost to revive growth. Major
developments within core Takaful markets such as Malaysia, Indonesia, Saudi Arabia and
the UAE, is likely improve the sector dynamics. Stronger and improved regulations, and a
higher compulsory cover, especially in the GCC nations, is likely to bolster profitability and
margins for Takaful insurers118.
117
118
Source: Moody's - Islamic insurance demand spurs higher premiums, April 2019
Exhibit 39: Takaful Market Statistics (2019)
Global Takaful Market Size (2019) Global Gross Takaful

Premiums/Contributions (2014-17)
US$ 51 billion
2014 2017
2%
Share of Global Islamic Countries Total Takaful

Finance Assets Operators
Source: ICD Refinitiv, Moody’s
Takaful by Geographical Presence
The GCC accounts for a 41.3% of the global Takaful assets, owing to its large and growing
The GCC accounts for a 41.3%
affluent Muslim population while MENA (28.3%) and SE Asia (26.1%) also have a sizable
of the global Takaful assets; market. In 2019, Saudi Arabia maintained its position as the top market for Takaful with
Saudi Arabia remains the top assets totaling US$ 17 billion, followed by Iran (US$ 14 billion), and Malaysia (US$ 10
market for Takaful globally billion), and the UAE (US$ 3 billion)119. In terms of growth, Maldives, Pakistan and Brunei
were the fastest-growing markets in 2018120, while Turkey recorded the fastest-growing
market for Takaful assets in 2019121.
Exhibit 40: Takaful Market Size by Region (2019) Exhibit 41: Takaful Markets by Assets & Operators (2019)
Source: ICD Refinitiv Source: ICD Refinitiv
Majority of the Takaful operators in Saudi Arabia and the UAE witnessed a dip in profitability
during 2018. In Saudi Arbia, measures to increase taxes for expats and promote Saudization
led to mass expat-outflows and capped profitability, while the UAE saw a fall in net income
119
120
121
due to high competition within its relatively small market122. However, the market revived in
Takaful operators in the GCC 2019 with Takaful contributions rising 8.8% during in Saudi Arabia, the world’s largest
markets, outside of Saudi market for Islamic insurance. The growth was primarily aided by medical insurance following
the introduction in 2018 of mandatory cover for dependents of Saudi nationals. Mandatory
Arabia, recorded higher
health cover was also introduced in Dubai, Abu Dhabi, and several other GCC regions,
growth in 2019, with
leading to rising demand for Takaful products. Most notably, the UAE introduced new
contributions rising 14% regulations in 2019 covering banking, Takaful, and sukuk, in a bid to enhance and
during the year strengthen its current regulatory framework123. Consequently, Takaful operators in the GCC
markets, outside of Saudi Arabia, recorded higher growth in 2019, with contributions rising
14% during the year124.
Within the SE Asian region, countries such as Indonesia and Malaysia have strong Takaful
market. Malaysia remains the regional leader, largely driven by the government’s efforts to
revise and improve its Takaful framework. The country’s Takaful sector has consequently
grown on the back of new credit-related Takaful products, improved contributions, and better
investment performance. Notably, InsurTech platforms are providing access to a larger
consumer base at controlled costs across the region, along with the benefits of improved
speed, convenience and efficiency. For instance, Malaysia-based Wakaful uses blockchain
technology to direct Waqf funds towards providing affordable Takaful products for low-
income consumers125.
Outside the core jurisdictions, the Sub-Saharan Africa is a growing Takaful market
comprising of around 20 operators across nine countries. The region’s market is expected
to expand as countries continue to introduce regulatory framework and update existing ones.
Tanzania’s Takaful regulatory framework was approved in early 2019, following which three
insurance firms applied for licenses in March 2019126. In August 2019, Moroccan legislation
allowed insurance companies to launch offerings for Family and General Takaful
operators127, with three companies approaching the regulator to open Takaful operations.
Most recently, the Algerian government in September 2020 announced plans to introduce
Takaful for the first time in the country in a bid to boost the nation’s Islamic finance sector128.
Consolidation in the Global Takaful Sector
Slowing economies have resulted in fall in profitability for the Takaful operators, leading
to higher consolidation and M&A activity, especially within the GCC countries and
Indonesia129. Moreover, several regulatory changes have been introduced across core
Takaful markets that have forced the industry to streamline operations. For instance, new
solvency requirements in the UAE demanding higher capital, coupled with the Saudi
Arabian Monetary Authority’s (SAMA) plan to increase minimum capital requirements for
insurance providers to SAR 500 million (US$ 133.3 million) – five times the current
requirement, has increased the challenges for operators130. This move would essentially
require nearly 90% of insurers in the Kingdom to either raise fresh capital, consolidate
with other players, or cease market operations. Such factors have attributed to the rising
consolidation activity within the Takaful sector. Along with the GCC, Indonesia has also
witnessed substantial M&A activity.
122
123
124
125
126
Source: “Tanzania:3 Takaful companies apply for Islamic insurance licences”, ME Insurance Review, March 2019
127
Source: “Morocco approves law on sharia-compliant insurance”, Reuters, July 2019
128
Source: “Algeria to launch Islamic insurance, open banks in Africa”, NASDAQ, September 2020
129
Source: State of the Global Islamic Economy Report 2020/21, DinarStandard & Salaam Gateway
130
• In June 2020, UAE-based Dar Takaful acquired Noor Takaful General and Noor
Takaful Family for a total consideration of US$ 58.5 million131.
• In March 2020, Merger between Saudi Arabia-based Walaa Cooperative Insurance
Company and MetLife AIG ANB Cooperative Insurance132.
• In November 2019, Swiss-based Zurich Insurance Group AG acquired an 80% stake
in PT Asuransi, Adira Dinamika Tbk after which it converted its business PT Zurich
Insurance Indonesia into a Shariah-compliant general insurance company under the
name PT Zurich General Takaful Indonesia (to be operational by 2021)133.
• In July 2019, Oman-based private investment firm Siraj Holding, announced the
acquisition of Al Hilal Takaful from Al Hilal Bank, a fully-owned subsidiary of Abu
Dhabi Commercial Bank134.
Growing Prominence of InsurTech
Technology innovations are widely known and are becoming increasingly popular due to
Several Takaful firms are now
their value add, offering increased speed, convenience and efficiency for both operators and
integrating enhanced consumers, while also helping operators reduce expenses significantly. Several Takaful
technology into their firms are now integrating enhanced technology into their insurance models, through
insurance models, through InsurTech platforms and offerings. In August 2019, five Takaful operators - Aman Insurance,
InsurTech platforms and Al Wathba Insurance, National Takaful Company (Watania), Noor Takaful, and Oriental
offerings Insurance signed up for an integrated blockchain platform developed by InsurTech startup
Addenda to streamline processes between insurance companies, allowing them to cut costs
by 30% through reduced claim response times135. Takaful operators have also been
benefiting from the emergence of online payment systems. For instance, Souqa FinTech’s
PayHalal system leveraged by Malaysia’s Zurich Takaful, provides its customers easier
Shariah-compliant payment options136. In June 2020, the National Takaful Company
(Watania) launched a customer portal to underwrite policies and enable customers to get a
policy online in under 4 minutes, providing them easy and efficient access to buy an
insurance policy backed up with hassle-free fast claim settlements137. Meanwhile, Oman
launched its first online Takaful platform in July 2020, Bima, which has already partnered
with eight insurance and Takaful providers to offer auto and domestic helper coverage. It
further plans to introduce Takaful coverage spanning travel, property, and term life138.
Competitive Landscape
Some of the leading players and operators in the global Takaful market include:
131
Source: “Dar Al Takaful completes $58m acquisition of Noor Takaful”, NS Insurance, July 2020
132
Source: “Walaa, Metlife AIG ANB create history with merger”, Arab News March 2020
133
Source: “Zurich Insurance to convert Indonesia entity into Syariah general insurer”, S&P Global, June 2020
134
Source: “Siraj Holding acquires Al Hilal Takaful”, Trade Arabia, July 2020
135
Source: “UAE:5 insurers are first to join blockchain platform”, ME Insurance Review, August 2019
136
137
Source: “National Takaful Co. takes underwriting policies online”, Gulf News, June 2020
138
Source: “Oman's first online platform to provide insurance services launched”, Zawya, July 21, 2020
Exhibit 42: Major Players in the Global Takaful Market (2019)
Total Assets Net Earned Net Profit
Company Country
(US$)* Contributions (US$)* (US$)*
Tawuniya Saudi Arabia 3,762,268,341 1,868,617,741 87,319,264
Syarikat Takaful Malaysia Keluarga Berhad Malaysia 2,563,139,127 583,286,054 90,746,731
Islamic Arab Insurance Co. (Salama) PJSC UAE 1,141,455,806 225,937,589 17,324,399
Prudential BSN Takaful Berhad Malaysia 1,056,483,116 465,469,571 12,262,858
Abu Dhabu National Takaful Company UAE 335,431,377 60,653,491 19,781,026
Qatar Islamic Insurance Group Qatar 321,382,331 54,554,478 3,343,480
Dar Al Takaful UAE 152,088,015 49,976,944 -12,227,914
Takaful International BSC Bahrain 105,557,419** 38,225,961** 2,246,371**
Takaful Brunei Keluarga Sdn Bhd Brunei 91,971,166 14,359,437 1,374,607
Source: Company Annual Reports and Websites, Alpen Capital; * All figures as of 31 December, 2019, ** Figures as of 31 December, 2018
Note: Figures have been converted from local currency at the following rates: US$/MYR: 0.2477395, US$/AED: 0.27225923, US$/SAR: 0.26655371, US$/BHD:
2.652707, US$/BND: 0.7544495, US$/QAR: 0.2746498
2.5 Other Islamic Financial Institutions (OIFIs)

Overview
Other Islamic financial institutions (OIFIs) entail all Islamic financial institutions that do not
fall under the umbrella of Islamic banks and takaful operators, such as investment firms,
financing, mortgage, leasing and factoring companies, microfinance institutions and others.
Exhibit 43: OIFI Assets Growth (US$ billion, 2014-2019) Exhibit 44: Number of OIFIs by Type (2019)
Source: ICD-Refinitiv Islamic Finance Development Indicator Source: IIFM Sukuk Report
OIFI Assets
In 2019, OIFIs witnessed a 6%
y-o-y growth in total assets; In 2019, OIFIs witnessed a 6% y-o-y growth in total assets to reach US$ 153 billion139.
Investment firms account for Investment firms made up 45% of total global OIFIs in 2019, followed by financing
the largest share globally companies, which accounted for 19%. In terms of assets, investment firms retained its
139
leading position, accounting for nearly 40% of total global OIFI assets at US$ 59 billion,
closely followed by financial companies with 37% share valued at US$ 56 billion, and real
estate OIFI with 8% share worth US$ 12 billion.
Exhibit 45: Total OIFI Assets by Category (US$ billion, 2019)
OIFIs by Geography
Malaysia, Iran and Saudi Arabia are the top three markets in terms of OIFI assets, and
accounted for a combined 72% of the total global OIFI assets in 2019140. The Maldives
registered the fastest growth within the OIFI segment in the year, as the country’s total
assets rose 62% y-o-y to reach US$ 44 million. The nation has made significant efforts to
develop the industry through stringent regulatory frameworks, leading to rapid growth in
assets141. Investment firms, which accounted for the largest share of OIFIs globally as well
as of OIFI assets, are highly concentrated in Bahrain. Majority of the 19 OIFIs in the country
are investment firms holding US$ 693 million in assets142. Moreover, banks such as Gulf
One Bank143 and Ibdar Bank144 converted licenses to Category 1 Investment Business Firms
in 2019, followed by GB Corp145 and Al Baraka Banking Group in 2020146. Investcorp, which
has an Islamic window, also applied for license conversion to an investment firm in 2020147.
The Maldives has been witnessing growth of OIFIs, especially in real estate. In 2012, HDFC
Amna was established as a unit of the Maldivian Housing Development Finance Corp.
(HDFC) to offer home financing instruments that were Shariah-compliant148. With Islamic
housing retail financing garnering particular prominence in the country, HDFC witnessed a
31% spike in these assets in 2019. Many other financial institutions have also emerged to
140
141
142
143
Source: Gulf One Investment Bank: Semi Annual Report 2018, March 15, 2018
144
Source: Idbar Bank Consolidated Financial Statements 2018, December 31, 2018
145
Source: “Bahrain's GFH inks deal to hold majority share in Sharia investment firm”, Arabian Business, August 24,
2020
146
Source: “Al Baraka Group to convert parent company's license”, S&P Global, September 22, 2020
147
Source: “Investcorp Holdings B.S.C. Report 2020”, Fitch Ratings, April 9, 2020
148
Source: “A new Islamic finance hub emerges in the Indian Ocean”, Gulf Times, July 30, 2019
offer Islamic financial services and products, including Islamic insurance through institutions
such as BML Islamic, Ayady Takaful, Bank of Ceylon and Habib Bank149.
Exhibit 46: Major Players among Other Islamic Financial Institutions

Recognition &
Company Description
Awards (2019-20)
Widely considered a pioneer in global Islamic Finance, Kuwait Finance House (KFH) is one of the largest Best Islamic
IFIs in the world, with a network spanning the GCC, Turkey and other Asian and European countries. Financial Institution,
Kuwait It is gaining momentum in the Islamic insurance (takaful) market, with an active presence in resinsurance Best Islamic Fund
Finance as well. The KFH Takaful app and website led to a surge in demand for its takaful products, as they Manager, Best
House (KFH) facilitated easier access to its wide range of insurance products. Islamic Takaful, Best
It also established its Islamic fund management operations through KFH Capital Investment, its Islamic Trade
investment arm. KFH continues to introduce innovative and new Islamic products and services to bolster Finance Provider
its Islamic product portfolio.
Boubyan Capital operates as an Islamic company and the investment arm of Boubyan Bank. It designs
and builds well-diversified portfolios, balancing long-term goals with short-term needs to deliver an
Boubyan Best Islamic Asset
intensely resourced pool of wealth management solutions.
Capital Manager
Boubyan Capital focuses on four core services; including Asset Management, Alternative Investments,
Brokerage, and Robo Advisory.
Jadwa Investment is a Saudi investment management and advisory firm offering a comprehensive range
of financial and investment services for both individual, as well as corporate financial goals. It provides
services that include asset management, financial advisory, mergers and acquisitions and researched
brokerage, among others.
Jadwa Best Islamic Fund
A Sharia Supervisory Board governs all investments and financial services offered by Jadwa. The firm
Investment Manager
aims to pioneer in the Sharia-compliant investment services domain, with innovative investment
products and services that can facilitate clients and customers to meet their objectives.
Most recently, the firm launched Aldar Investment Fund, a SAR 1 billion (US$ 266 million) Islamic real
estate fund to develop over 1,500 homes in Riyadh.
Al Rajhi Capital (ARC) is one of the largest asset managers in Saudi Arabia and a leading investment
firm in the region, operating regionally from 16 offices across the Kingdom. ARC is a financial services
firm that provides a diverse range of innovative Shariah-compliant financial products and services.
Al Rajhi Best Islamic Asset
It is the investment-banking subsidiary of Al Rajhi Bank, one of the largest global Islamic banks, and
Capital Manager
integrates its knowledge, resources and experience to deliver streamlined solutions. It leads the market
in offering bespoke financial and investment solutions, which address the investment needs and goals
of clients, institutional customers and HNWIs
Offa emerged in September 2019 as the first-of-its-kind Shariah-compliant bridging lender in the UK. It
initiated operations with GB£ 20 million in funding by an Islamic UK financial services institution. It lends
up to 75% FTV on residential bridging and up to 65 per cent FTV on commercial bridging products, with
a procuration fee of 2% going towards the introducers.
Offa Offa’s products are available to both domestic and international clients based overseas; and its launch -
is likely to spur growth by expanding the reach of the Islamic finance market in the UK. The lender plans
to extend its reach into bridging and other specialist forms of lending. This remains an untapped market,
but with significant and growing demand from property investors seeking alternatives. It also intends to
expand into refurbishment, stretched development, planning and shared risk ethical finance.
Source: Best Islamic Financial Institutions In The World 2019, 2020; Global Finance, The Magazine, Institution Websites
149
Source: “A new Islamic finance hub emerges in the Indian Ocean”, Gulf Times, July 30, 2019
3. Islamic Wealth Management
Overview
Islamic wealth management has five key components: wealth creation, wealth accumulation,
wealth purification, wealth protection, and wealth distribution. It primarily aims to provide a
level of investment protection, generate and accumulate income and distribute wealth in
accordance with the norms of Islamic law. In other words, it stipulates wealth creation
through Shariah-compliant investment vehicles such as Islamic funds, sukuks and Islamic
equities. Other wealth management tools include estate planning/inheritance, private equity
and venture capital. Notably, all Islamic wealth management propositions incorporates the
concept of social responsibility and accountability150.
Exhibit 47: Key Components of Islamic Wealth Management
Source: CAPCO
Although Islamic finance has made significant advancements over the past two decades,
Islamic wealth management
Islamic wealth management remains at a nascent stage of development, both in size and
remains at a nascent stage of
sophistication. The market is estimated to be small in comparison with the conventional
development, both in size and global wealth market and the growing private wealth in the Muslim majority countries in
sophistication MENA and Asia151. The lack of diversity in product offerings has limited the rise in demand
from the wider population group. While more Sharia-compliant Islamic finance solutions are
needed in the wealth management segment, there is also a need for market players to boost
understanding of Sharia-compliant finance structures and solutions to the wider investor
communities. Nevertheless, Islamic wealth creation is witnessing expansion amongst the
wealthy individuals and families in the Muslim majority countries across the globe. The trend
towards embracing alternative investment options, need of investment in ethical and socially
responsible vehicles coupled with the rising population of high net-worth individuals (HNI)
and ultra-high net-worth individuals (UHNI) has boosted the market. Younger generations
of Muslim HNI and UHNI wealth management clients are more receptive to Islamic finance
and Shariah-compliant products, partly as they qualify with the other investment
considerations such as environmentally friendly and socially impactful investment for return
or yield. Industry stakeholders and providers in the MENA and Asian countries are thus
150
Source: “The Emergence of Islami Finance in Wealth Management”, CAPCO
151
Source: “The Evolution Of Wealth Management In The World Of Islamic Finance”, Hubbis, Jersey Finance, 2019
Evolving regulatory offering a wide range of Shariah-compliant wealth management products and solutions,
specifically targeting the affluent class of investors. Consequently, the evolving regulatory
developments across the GCC,
developments across the GCC nations, Malaysia and Indonesia have led to investments
Malaysia and Indonesia have
flowing back onshore across the world of wealth management. This offers an opportunity to
led to investments flowing the region’s Islamic wealth management industry to enhance their onshore Shariah-
back onshore across the world compliant propositions152.
of wealth management
Exhibit 48: Comparison of Investment Options
Source: CAPCO
Islamic Private Banking
Numerous major global private banks have realized the advantages of integrating Islamic
Growing affinity for Islamic
banking services alongside their conventional offerings, due to the large potential it holds
products among the HNI/UHNI
for growth. Leading banks in core Islamic finance markets such as SE Asia, the GCC, and
and affluent family offices is
the broader MENA region have thus begun to tap into this segment. Large private banks
likely to aid growth and such as Maybank, CIMB Malaysia, Standard Chartered Bank (SCB), HSBC Amanah and
innovation within the Islamic Qatar National Bank (QNB) have accordingly developed robust product portfolios that cater
private banking sector to Islamic private banking requirements.
A 2019 survey by Hubbis suggests that Islamic private banking is likely to witness growth if
major global private banks integrate Islamic banking within their product portfolio153. Such
integration is likely to have a two-fold effect - propelling the reach of Islamic private banking
in non-core Islamic markets, as well as expanding innovation and product options available
to affluent Shariah-conscious investors in core Islamic finance regions. The Islamic finance
market is poised to witness strong growth with the onset of more investment opportunities,
wherein Islamic banking can meet the needs of capital markets154. Islamic private banking
has a large role to play in innovating products and meeting these needs. The growing affinity
for Islamic products among the HNI/UHNI and affluent family offices is likely to aid growth
and innovation within the Islamic private banking sector155.
152
Source: “The Evolution Of Wealth Management In The World Of Islamic Finance”, Hubbis, Jersey Finance, 2019
153
Source: The Evolution of Wealth Management in the World of Islamic Finance, Hubbis, November 20, 2019
154
155
Islamic private banking has witnessed notable developments by large institutions across
core markets. For instance in December 2020, Ahli United Bank’s (AUB) Private Banking,
through its Islamic window Al Hilal Islamic Banking Services, announced a partnership with
Islamic investment management firm, Principal Islamic Asset Management, to support its
clients’ long-term financial objectives156. Many private banks, both Islamic and non-Islamic,
have notably emerged with comprehensive frameworks for Islamic private banking. Some
other major players in the Islamic private banking space include:
Maybank Group Islamic Banking is a key player in the Islamic private banking market,
and the largest Islamic banking group by assets in the ASEAN region. In 2020, the group’s
regional wealth franchise comprising Private Wealth, Premier Wealth and Privilege Wealth
segment stood at MYR 244.0 billion (US$ 59.5 billion) in total AUM, registering a growth of
8.3% CAGR over the five year period from 2016157. Maybank’s offers its wide range of
Islamic financial products and services through 354 Maybank facilities in Malaysia. It also
has a strong presence in Indonesia, Singapore, Hong Kong, the UK and the UAE158. It is
one of the largest banks in Malaysia, strengthening its asset management business through
new and innovative Islamic banking products. Notably, it has maintained a strong focus on
digitalization and the integration of digital tools to improve its services. Its mobile app, Smile,
for example, is providing clients access to their insurance policies, and information for
strategic decision-making. The bank’s Private and Premier Divisions provide a suite of
personalized services for their customers’ daily banking requirements, along with addressing
long-term investment objectives159.
Some of Maybank’s digital wealth management and private banking offerings include the
Maybank Wealth app, which provides affluent clients with an amalgamated view of their
product holdings in order to help them manage finances, and evaluate investment status. It
also has a digital banking platform, the Maybank2u app, which utilizes Secure2u features
and biometrics160, and even enables customers to write wills online. It has also launched a
real-time chat platform M2U Live Chat, to provide round-the-clock assistance for premier
banking customers. Its QRPay and Tap2Phone solutions have provided affordable digital
payment solutions for small merchants, while SMEs in Malaysia can avail of its SME Digital
Financing with ten-minute approvals and digital real-time account opening services for
SMEs161. Maybank was also the first Malaysian local bank to introduce SWIFT Global
Payments Innovation (GPI), enabling faster, more convenient and safer cross-border
remittances162. As part of its key focus areas in 2019, Maybank Trade improved its
engagement platform to integrate predictive analytic capabilities for customer behavior, as
well as introduce biometrics logins for faster and more secure transactions163.
156
Source: ”Ahli United Bank's Private Banking Partners with Principal Islamic Asset Management to support clients'
long-term financial goals”, Ahli United Bank, December 27, 2020
157
Source: Maybank Annual Report 2020
158
159
Source: “World’s Best Private Banks 2021: Middle East”, Global Finance Magazine, December 9, 2020
160
161
162
163
Exhibit 49: Maybank Malaysia Financials (2018-2020)
Maybank Group
(in US$ billion) 2016 2017 2018 2019 2020
Total Assets 175 182 192 199 204
Deposits from Customers 116 120 127 130 133
Shareholder's Equity 16 17 18 19 20
Group Bank
(in US$ million) 2018 2019 2020 2020 2018 2019 2020
Operating Revenue 11,272 12,593 12,156 6,355 6,414 5,803
Operating profit 2,573 2,586 2,012 2,084 2,004 1,650
Net Income 1,933 1,953 1,544 1,741 1,734 1,421
Deposits from Customers 126,897 129,707 132,522 60,779 57,825 59,556
Net Loans 120,787 122,297 122,008 54,873 53,973 54,768
Total assets 192,225 198,757 204,104 108,765 110,611 113,456
Source: Maybank Financial Statements
CIMB is the largest private Bank in Malaysia, with MYR 602.4 billion (US$ 146.8 billion) in
total assets as of 2020. Its operating income reached MYR 17.2 billion (US$ 4.2 billion) in
2020, while net profit stood at MYR 1.2 billion (US$ 0.3 billion)164. In 2017, CIMB became
the first bank in Malaysia to get regulatory sandbox approval for electronic-know your
customer (e-KYC) to accentuate its Consumer Banking proposition165. It established the first
Big Data platform in Malaysia, by leveraging open-source software technology. CIMB
Private Banking now offers HNIs and affluent clients personalized advisory, portfolio
planning and wealth management solutions166. Its digital private banking offerings include
Clicks Trader, an online portal that offers online trading conveniences to help clients grow
their investments through the CIMB Clicks mobile app. In 2015, CIMB Private Bank
collaborated with UOB Asset Management (Malaysia) and BNY Mellon Managed
Investments, to introduce a discretionary portfolio platform, and Separately Managed
Accounts (SMA) for its ultra-HNI clients. The platform facilitates access to investment
strategies from global asset managers for investors, and assists them to invest in global
stocks through multicurrency strategies167.
Standard Chartered Bank (SCB) has emerged as the first global bank in Malaysia to launch
an Islamic banking arm and introduce Islamic products. Its Islamic banking network Saadiq
offers global Islamic private banking services that integrate in-depth Shariah expertise with
business acumen. In Malaysia, total assets for SC Saadiq Berhad reached MYR 7.9 billion
(US$ 1.9 billion) by September 2020168. Saadiq also has a presence in Bangladesh, Bahrain,
Malaysia, Pakistan and the UAE, among other nations spanning Asia, Africa and the Middle
East169. SCB is the first bank in Malaysia to offer both secured foreign currency wealth
lending, as well as banking services through video, audio and chat mediums for Personal
and Priority Banking customers170. It won the award for Malaysia’s best Islamic Digital Bank
for the fourth straight year in 2020. Its digital private banking offerings include Smart Direct,
a tool that enables FX transacting across 250 mutual funds and online portfolio tracking;
Smart Goals, for customizing financial goals per investor needs and preferences; and
164
Source: CIMB Annual Report 2020
165
Source: “CIMB is First Bank to Receive Regulatory Sandbox Approval For E-KYC”, CIMB, November 23, 2017
166
Source: Digital Wealth Management in Asia Pacific Report, KPMG, March 10, 2021
167
Source: “CIMB Private Banking To Offer SMA”, Finews Asia, May 29, 2015
168
Source: Standard Chartered Saadiq Berhad Financial Statements for the period ended 30 September 2020
169
Source: Standard Chartered Website
170
Wealth Power, which enables investing in bonds, unit trusts, insurance products and more,
for potentially better returns171.
HSBC Amanah Malaysia is another major player in the Islamic private banking market that
offers a host of Shariah-compliant products and services to its customers, as part of its
Islamic private banking portfolio. In December 2020, its total assets stood at MYR 18.4 billion
(US$ 4.5 billion). Although this represented a 13.2% decline from MYR 21.2 billion (US$ 5.2
billion) in 2019, the bank’s capital and liquidity ratios have stayed strong, and above
regulatory requirements172. HSBC Amanah’s offerings enable investors to engage in
Shariah-compliant equity market investing, and offers a range of wealth management
solutions for individual needs. Moreover, it offers personalized assistance and tools such as
its online payment gateway FPX, which enables easy and real-time online payments;
NetPlus, offering fraud awareness and cybersecurity threat information. Its digital wealth
management and private banking offerings include digital account onboarding, real-time
mobile access to trade transactions (Trade Transaction Tracker), online wealth
management platform (Wealth Dashboard), fund monitoring access, investment-related
news and updates, and instant cross-border money transfers via mobile banking173. HSBC
Amanah has won several awards for its Islamic banking offerings in 2020 including the
Islamic ESG Bank of the Year, Best Islamic Trade Finance Bank, Best New Sukuk, Best
Quasi-Sovereign Sukuk, Best Trade Finance Product, Best Structured Financing, Islamic
Finance House of the Year, and Best Islamic Syndicated Financing Deal of the Year174.
Qatar National Bank (QNB), which is one of the largest and fastest growing lenders in the
Middle East, holds a 30% market share in the region’s private banking175. It has tailored its
private banking services to cater to the evolving preferences of the Middle East’s customer
base that comprises of increasingly young HNIs. The bank’s investments into technology
have enabled it to create a niche digital banking system with advanced digital tools such as
video link platforms, mobile applications using face recognition and collaborations with
telecom operators. Accordingly, the bank has expanded its offerings across the globe with
presence in more than 31 countries spanning Asia to Europe176.
Several other private banks continue offer a wide range of similar services in core markets
like Malaysia. For example, Citi Malaysia’s total wealth advisor platform, and its array of
investment products comprising retail bonds, unit trusts, market-linked investment to dual
currency accounts, and many more are witnessing strong growth177. This trend is likely to
continue, largely driven by an uptick in the appetite for Shariah-compliant banking products
from HNIs in the Middle East, as well as in Asian countries like Malaysia and Indonesia.
Retirement and Pension Funds
The belief in administration and management of wealth in a sustainable manner, along with
the religious guidance that encourages Muslims to save during times of abundance, makes
it imperative for religiously observant investors to plan for their old age in advance178. This
leads to the need for good retirement planning that is Shariah-compliant, where apart from
constantly ensuring the compliance to Shariah laws, the investors also need to establish a
procedure for Zakat. Another factor that makes retirement planning important is the growing
171
172
Source: HSBC Amanah Malaysia Berhad Financial Statements 2020
173
174
Source: HSBC Amanah Malaysia Annual Report 2020
175
176
177
178
Source: “Analysing Shariah Compliant Retirement Planning: the Case of Malaysia”, Science Publishing
Corporation, 2018
proportion of ageing population across countries, along with the rising levels of living
costs179.
Despite favorable demographic profiles and stable demand for such investment vehicles,
Despite favourable the growth of Islamic pension funds has been relatively slow compared to conventional
funds. In 2017, EY reported that public pension funds (conventional and Islamic) amount to
demographics and stable
~US$ 400 billion in the GCC alone, wherein more than half this volume would preferably be
demand, the growth of Islamic
invested in Shariah-compliant funds if enough Islamic investment opportunities existed.
pension funds has been While this talks about the huge potential of Islamic pension funds as a market, it also strongly
relatively slow compared to magnifies the lack of adequate investment opportunities180. Nevertheless, the market for
conventional funds such funds has picked up pace in the past decade, largely backed by governments initiatives
to channel proportional institutional capital into Shariah-compliant funds. According to
Thomson Reuters, pension funds were the top performer among the various Islamic asset
classes in 2014, representing 0.2% of the global Islamic funds, and amounting to an asset
size of US$ 146 million amongst 64 funds181. By 2019, this asset size recorded a historic
jump to US$ 86 billion182.
SE Asian countries have been at the forefront of introducing pension fund schemes.
The asset size of pension
Malaysia introduced an Islamic savings scheme option as part of its state pension plan in
funds recorded a jump to US$
2016, called the Employees Provident Fund (EPF), in addition to the existing investment of
86 billion in 2019 from US$ 146 about a third of the EPF’s portfolio in Sharia-compliant stocks and bonds. Of the US$ 160
million in 2014 billion assets that make up the EPF’s assets, US$ 25 billion were dedicated to a new
Shariah-compliant investment vehicle, equating to 15% of the total portfolio. This made it
the largest standalone Islamic pension fund globally. It also allowed the country to attract
new money and encourage higher issuance of sukuk and Shariah-compliant equities for
investments by the pension fund, indirectly boosting demand for Islamic securities in
Malaysia183. Additionally, Malaysia announced plans to make its second-largest pension
fund scheme, Retirement Fund Inc. or KWAP, fully Shariah-compliant184. In Turkey,
voluntary Islamic pension funds, known as participation retirement schemes have been
introduced. They allow investments in property and commodity bonds or funds, Shariah-
compliant equities, government bonds and other permissible vehicles.
Outside the core markets, there has been an upsurge in demand for appropriate investment
vehicles and options for religiously observant investors across the EU and Asia Pacific
regions. The UK and Australia were among the first countries to introduce Islamic pension
funds. In 2008, UK became the first Western country to provide halal retirement savings
options for its large Muslim population. This was followed by the then-Islamic Bank of Britain,
one of the largest Shariah-compliant banks in the UK and today known as Al Rayan Bank,
creating the Islamic Pension Trust. The trust enabled Muslim employers and charities to
provide a Shariah-compliant workplace pension that met all government criteria for an auto-
enrolment scheme. Australia launched its first private Islamic pension fund in 2012, followed
by other investment instruments such as halal superannuation funds. As of 2020, Crescent
Wealth Super is the only provider of Shariah-compliant superannuation in Australia, with
several smaller players gradually entering the market. Crescent Wealth Super manages just
under US$ 300 million in retirement funds or 0.5% of the total market of US$ 43.3 billion185.
179
Source: “Analysing Shari’ah Compliant Retirement Planning: the Case of Malaysia”, Science Publishing
Corporation, 2018
180
Source: “Shariah-compliant pension schemes gaining popularity”, Gulf Time, January 24, 2017
181
Source: “Global Islamic Asset Management Outlook 2015”, Thomson Reuters
182
Source: “Islamic Finance Development Report 2020”, Thomson Reuters
183
Source: “Shariah-compliant pension schemes gaining popularity”, Gulf Time, January 24, 2017
184
Source: “Islamic Finance Development Report 2017”, Thomson Reuters
185
Inheritance/Estate Planning
Another important aspect of Islamic wealth management is of Islamic estate/inheritance
planning that governs the distribution of wealth in the family. Significantly different from the
conventional method of writing wills, Islamic estate planning is guided by the principles of
Faraid or Mirath under the Shariah law. Faraid, defined as fixed shares, involves following
a fixed order and formula for distribution of wealth of the deceased to ensure fairness and
justice186. The first in order is the allocation of funds for funeral expenses, followed by the
settlement of any debt that might be left behind. This stage also includes the payment of any
outstanding Zakat, dowry, etc. The third step is the settlement of Wassiyah. This is the
distribution of one-third of the remaining estate to individuals or organizations who are not
heirs of the descendant by law, a gift to adopted children, charity, friends or other
organizations187. Lastly, the remaining portion of the estate makes up the inheritance given
to the descendants in the proportion mentioned below:
• A surviving husband receives one-half of the assets involved;

• A surviving husband receives one-fourth of the assets if he has children;
• A surviving wife receives one-fourth of the assets involved;
• A surviving wife receives one-eighth of the assets if she has children;
• The deceased person’s mother and father will receive one-sixth of a share each;
• If the deceased person has children, the remaining shares will go to the children in
a 2:1 ration for sons and daughters188.
The law also allows for consideration of a will to a certain extent189. However, it does not
allow disinheritance or changing the fixed proportions of distribution as laid down under
Faraid. Such a permission is only given when all the heirs agree to do so190.
186
Source: “Inheritance in Islam”, Islamic Wills
187
Source: “Sharia Estate Planning (Islamic Law)”, Klenk Law
188
Source: “Property Distribution According To Islam”, Islamic Wills
189
Source: “Inheritance Under Muslim Law: Framework of Sharia Law”, Dr.Hasan Elhais, February 27, 2019
190
Source: “Property Distribution According To Islam”, Islamic Wills
4. Islamic Social Finance
Overview
Islamic social finance or ‘philanthropic’ umbrella covers several types of charitable giving
and funds in the Islamic finance space. Most prominent among these are Zakat, which refers
to obligatory Islamic charitable giving; Waqf, synonymous to charitable endowments or
donations; and Qard al-Hasan, which are essentially benevolent interest-free loans.
The market for Islamic social finance remains largely untapped. Global Waqf endowments
were estimated to have reached US$ 410 billion in 2016, while Zakat was estimated to have
reached US$ 76 billion in 2018191. Data further suggests that Zakat could peak as high as
US$ 356 billion, if mechanisms are adequately improved to enable Muslims to safely and
properly fulfil these obligations192.
Exhibit 50: Islamic Finance Corporate Social Responsibility Market Size (2019)
Islamic Finance Corporate Social Responsibility (CSR) funds comprise of charitable funds
US$ 1.2 billion was disbursed
distributed by Islamic Financial Institutions (IFIs) across the world. Overall in 2019, US$ 1.2
by IFIs through Islamic CSR
billion was disbursed by IFIs through Islamic CSR funds, a staggering 81.5% surge over the
funds during 2019
US$ 639 million distributed during the previous year193. It also marked a landmark moment
as the first year wherein Islamic CSR funds crossed the US$ 1.1 billion mark. Of these,
Zakat and charity funds accounted for US$ 1 billion, while Qard al-Hasan Funds comprised
the remaining US$ 129 million194.
Top Countries within Islamic Social Finance
Saudi Arabia, Jordan, the UAE, South Africa and Nigeria ranked the top 5 countries in the
Islamic Finance Development Indicators 2020. Saudi Arabia, Jordan and the UAE were the
top three countries in terms of CSR funds distributed, while South Africa, Nigeria and Sri
Lanka led in terms of CSR activities. Notably, Syria and Egypt were the countries with the
largest score improvements due to higher funds distributed during 2019195.
191
192
193
194
195
Exhibit 51: Total CSR Funds Disbursed by Top Countries (2019)
Total CSR funds disbursed during 2019 were higher than the preceding year due to high
Saudi Arabia witnessed 231%
outstanding settlement claims by Islamic banks in Saudi Arabia196. Globally, Saudi Arabia
increase in its Zakat and
comprises the largest market, in terms of charitable funds distributed by its Islamic financial
charity activities in 2019/2020; institutions. Zakat contributions, in particular, have been on the rise in the Kingdom, having
UAE recorded 61% increase in reached US$ 699 million in 2019197. The General Authority of Zakat and Tax (GAZT) has
the value of its Zakat and taken notable steps to enhance the quality of governance and legislation for Zakat. In March
charitable collections 2019, the GAZT issued a new Zakat by-law stipulating that Zakat/tax due on locally-issued
bonds and sukuk would be borne by the government, along with new Zakat rules for
financing activities by SAMA-licensed firms198. In August 2020, GAZT was awarded two
internationally-recognized certificates for upholding the efficacy of quality control systems,
dealing with complaints and increasing customer satisfaction199. Consequently, Saudi
Arabia witnessed a staggering 231% increase in its Zakat and charity activities in 2019/2020,
maintaining its position as the top-ranking country in terms of Zakat and charitable
contributions200. Other Middle-Eastern countries have also seen a surge in interest within
the Islamic social finance space. In 2019/2020, the UAE, a significant market in terms of
Islamic social finance contributions, witnessed a 61% y-o-y increase in the value of its Zakat
and charitable collections, while Jordan’s value of Zakat and charity also grew by 13% over
the previous year201.
Within SE Asia, Malaysia and Indonesia boasts are the most prominent markets for Islamic
social finance. The Malaysia Digital Economy Corporation (MDEC) is focused on leveraging
Islamic social finance tools such as Zakat, Waqf and Sadaqah, to achieve sustainable
development by improving the status of poverty-ridden citizens. For instance, in March 2020,
MDEC worked with the Islamic Medical Association of Malaysia’s Response and Relief
Team (IMARET) and several Malaysian crowdfunding platforms (Global Sadaqah, pitchIN,
SimplyGiving) to launch a donation drive supplying safety gear for the nation’s COVID-19
196
197
198
Source: “KSA: New Zakat By-Law, new specific Zakat rules for financing activities and cost of Zakat/Tax on Bonds
and Sukuk issued locally by the Ministry of Finance is borne by the Government”, PWC, April 2019
199
Source: “Saudi Arabia’s zakat authority awarded two recognized certificates”, Arab News, August 2020
200
201
pandemic frontline officers202. Meanwhile, Indonesia’s Islamic finance market also remains
substantial, with strong potential in the social finance segment. Despite Zakat collections
coming in at just 4.4% in 2019, Indonesia has a strong Waqf industry, and has remained
focused on its Waqf endowments. The country is estimated to have IDR 180 trillion (US$
12.8 billion) in potential cash Waqf and 11,000 hectares in current land Waqf203. In March
2020, the government issued its first cash Waqf-linked Sukuk or Cash Waqf-Linked Sukuk
(CWLS), an Islamic bond financed by endowments, valued at over IDR 50 billion (US$
350,000)204.
Emergence of Islamic Social/Philanthropic Funds to Create Global Social Impact
Islamic social finance is witnessing a growing role in driving positive impact across the globe.
The COVID-19 health crisis has brought the rising importance of Islamic social finance to
the frontlines, highlighting the growing need for social impact funds to promote sustainable
development, especially in current times. Accordingly, a number of prominent global funds
have emerged, such as the UK’s One Endowment Trust, which was established in March
2020 with the aim to become a GBP 1 billion Waqf fund205. This Trust will invest in real
estate, PE, sukuk and Islamic funds, alongside reinvesting in sustainable social projects.
Another UK-based fund is the National Waqf Fund (NWF), which was established to cater
to the growing Muslim population in the UK, and is investing in real estate, along with looking
at other investment avenues such as start-ups, and establishing a central fund to manage
Waqf for other organizations206. In 2020, the fund directed part of its profits towards its
pandemic response program to provide hygiene kits, along with Ramadan food parcels for
Gaza and Niger families.
The United Nations Refugee Organization (UNCHR) is working to utilize Islamic charitable
donations for creating long-term social impact. In April 2019, UNCHR introduced the
Refugee Zakat Fund, a fully Shariah-compliant fund backed by five fatwas, which would
authorize Zakat collections to be delivered to eligible refugees. Built with the objective to
transform UNHCR’s existing Zakat program into a global fund, it aimed to raise US$ 200
million for the most vulnerable displaced families in the MENA region207. In 2019, the fund
raised more than US$ 43 million, directly benefiting over 1 million vulnerable displaced
persons208. To date, the fund has helped over one million beneficiaries across Yemen,
Lebanon, Iraq, Jordan, Egypt, Pakistan, Bangladesh, India and Mauritania209.
Digitization in Islamic Social Finance
In 2020, many Zakat, Waqf and other charitable/endowment funds adopted technology
integration as part of the digitalization drive. Several FinTech platforms were developed to
offer Islamic social finance services such as apps to collect Zakat contributions digitally210,
and digital Waqf contributions, which have emerged in the past few years. Indonesia’s
National Committee for Islamic Finance (KNKS) launched a digital platform to distribute
charitable funds via LinkAja, a centralized payment platform, which not just digitizes
mosque’s Sadaqah donation system but also helps trusts and other organizations better
manage and disburse funds via Zakat and Waqf payments211. Indonesia also developed the
first blockchain-based crowdfunding Waqf globally. Following suit, other blockchain-based
202
Source: “Malaysian crowdfunding platforms raise funds for hospital PPE”, Salaam Gateway, April 2, 2020
203
Source: “Indonesia could be Asia's next Islamic finance hub”, The Jakarta Post, January 2021
204
Source: “Government Issued First Cash Waqf-Linked Sukuk in 2020”, KarimSyah, April 22, 2020
205
Source: “New Islamic endowment trust seeks to be UK’s first Waqf to combine commercial and social investments”,
Salaam Gateway, March 18, 2020
206
Source: National Waqf Fund Website (nwk.org.uk)
207
Source: “UNHCR unveils the Refugee Zakat Fund”, UHCHR, April 2019
208
Source: “After visiting refugee camps, Saudi comedienne Hatoon Kadi urges people to support displaced families
this Ramadan”, Salaam Gateway, May 2020
209
210
Source: “The rise of zakat-tech”, Salaam Gateway, November 8, 2019
211
services are now being offered by US-based Shariah-compliant decentralized payment
system Stellar; global payment provider Ripple, whose technology has already been
deployed by several major Islamic banks; Waqf Chain, a Waqf crowdfunding system by
Malaysian FinTech operator Finterra for investing in development projects212. In May 2020,
Malaysian FinTech GlobalSadaqah announced the facilitation of cryptocurrency donations
on its Social finance platform, which enables Zakat and Waqf payments using Bitcoin213.
Despite significant advances, technology integration has been slower within Islamic social
finance as compared to other verticals, due to lack of regulations, differences in global
legislation governing transactions in Zakat and other charitable giving, and Shariah law (fiqh
and fatwa) that lags behind digital innovations for Zakat management214. In February 2020,
Saudi’s GAZT even highlighted the concerns surrounding ongoing digital transformation and
emphasized the need for exchanging knowledge and benefiting from global practices215.
However, tech adoption has been accelerated since the COVID-19 pandemic, bringing in
fresh avenues and opportunities for growth within blockchain, cryptocurrencies, digital
payments, and other tech-enabled offerings within Islamic social finance. Continuous
innovation and integration of new and emerging technologies will only further expedite the
growth within this segment.
212
Source: “Blockchain paves the way for genuine innovation in Islamic finance”, Gulf Times, April 6, 2020
213
Source: “GlobalSadaqah to Enable Zakat and Waqf Payments Using Bitcoin”, FinTech News Malaysia, May 11,
2020
214
Source: “The rise of zakat-tech”, Salaam Gateway, November 8, 2019
215
Source: “Saudi Arabia’s zakat and tax authority urges exchange of knowledge for modernization”, Arab News,
February 2020
5. Islamic Acquisition Deals
Overview
Investments in the Islamic economy have seen substantial growth in the past five years. In
In 2020, US$ 11.8 billion was
2020, US$ 11.8 billion was invested in the Islamic economy (including halal food, modest
invested in the overall Islamic
fashion and healthcare), falling by 13% compared to 2019 due to the pandemic216.
economy; M&A accounted for Nonetheless, investments still represent a meagre 0.3% of the global merger and
55% of transactions, followed acquisition (M&A), private equity (PE) and venture capital (VC) investments in the broader
by VC (38.5%) consumer and financial services categories. With 86 deals during the year, M&A accounted
for 55% of transactions, followed by VC (38.5%).A significant portion of investments has
been in favor of the Halal food industry and the sector accounted for 39% of the total number
of deals in 2019/20217. The sector has witnessed increased participation from multinationals
like Nestle, Cargill and continues to draw important investments in response to technological
developments and government initiatives especially in the delivery, health-based and ready-
to-eat/cook segments218.
Exhibit 52: Total Islamic Deals by Sector (2020) Exhibit 53: Total Islamic Deals by Type (2020)
Deals in Islamic Finance Sector
Islamic finance accounted for the second largest share of investments by sector, valued at
Islamic finance accounted for
US$ 4.9 billion from a total of 38 deals in 2020. The total deal value, however, fell by more
the second largest share of
than 50% y-o-y from US$ 10.7 billion in 2019. Islamic M&As rose slightly over the same
investments by sector, valued
period, with several companies seeking to consolidate their balance sheets. Indonesia alone
at US$ 4.9 billion from a total bagged 14 deals followed by UAE (7 deals), and Kuwait (5 deals). The new Islamic finance
of 38 deals in 2020 regulations and guidelines introduced in various countries including the non-Muslim majority
countries have helped the sector grow and attract large investments. For instance,
Thailand’s largest corporate bank, Bangkok Bank acquired an 89.2% stake in Indonesian
bank, Bank Permata, which offers both conventional and Shariah-compliant services in a
deal valued at US$ 2.2 billion to increase presence in Indonesia. Similarly, In the UAE, Noor
Bank was acquired by Dubai Islamic Bank to become one of the largest Islamic banks in
the world, with assets exceeding US$ 75 billion. Some major deals were postponed to 2021
such as Kuwait Finance House’s US$ 8.8 billion acquisition of Bahrain’s Ahli United Bank
and National Commercial Bank’s US$ 15 billion merger with Samba Financial group in
216
217
218
Source: State of the Global Islamic Economy Report 2019/20 & 2020/21, DinarStandard & Salaam Gateway
Saudi Arabia219. The demand for Islamic finance products continues to grow and there
exists vast potential for Shariah-compliant investments, especially in the ESG and Islamic
social finance space. Given the slowdown in oil-based economies across the MENA region
and the ongoing financial crisis, consolidation through M&A activity is expected to continue
in the sector.
Exhibit 54: Top 10 Islamic Acquisition Deals (2018-2020, by Value)
Deal Value
Year Target Name Target Country Acquiror Sector
($ Mn)
British Virgin Indofood CBP SUKSES
2020 Pinehill Company 3,000.0 Halal Food
Islands MAKMUR
2020 PT Bank Permata Tbk 2,168.9 Indonesia Bangkok Bank Public Islamic Finance
2020 Noor Bank PJSC 893.5 UAE Dubai Islamic Bank Islamic Finance
2019 Banque Saudi Fransi 575.7 Saudi Arabia Ripplewood Advisors Islamic Finance
2019 Dangote Flour Mills Plc 484.0 Nigeria Crown Flour Mills Nigeria Halal Food
2020 Asuransi Adira Dinamika 414.0 Indonesia Zurich Insurance Group Islamic Finance
2018 AATCO Food Industries 408.8 Oman Kerry Group Halal Products
2019 F & B Nutrition Sdn Bhd 239.4 Malaysia Southern Capital Group Halal Food
Mubasher Financial Al Safwa Islamic Financial

2018 208.4 Bahrain Islamic Finance
Services Services
2020 Alizz Islamic Bank 178.7 Oman Oman Arab Bank Islamic Finance
Source: IFSB Stability Report 2020
Private Equity (PE) and Venture Capital (VC)
60 VC deals valued at US$ 2.2 PE and VC investments have also picked up pace accounting for approximately 45% of the
transactions in 2020. During 2020, 60 VC deals valued at US$ 2.2 billion and 10 PE deals
billion and 10 PE deals valued
valued at US$ 455.8 million were concluded220. The Islamic economy presents a huge
at US$ 455.8 million were
opportunity for PE and VC investors to invest in high-growth businesses, especially those
concluded in 2020, accounting which are tech enabled. For instance, Islamic FinTech has garnered significant attention in
for ~45% of the transactions recent years and opportunities remain abound in this segment. The, robo-advisory segment
in particular, has seen pickup in activity and the market is expected to expand with the entry
of new players. For example, USA’s robo-advisory platform, Wahed Invest raised US$ 25
million in a VC round led by Saudi Aramco Entrepreneurship Ventures in 2020221.
219
Source: Salaam “Islamic Finance After COVID-19”, Global Finance, December 28, 2020
220
221
Exhibit 55: Top 10 Islamic PE Deals (by Value) Exhibit 56: Top 10 Islamic VC Deals (by Value)
Deal Deal
Company Size Target Fund Company Size Target Fund
Year Year
Name Country Name Name Country Name
($ Mn) ($ Mn)
2017 Banvit 470.0 Turkey QIA Mitsubishi
2020 Gojek 1,200.0 Indonesia Corp, Visa,
2020 Traveloka 250.0 Indonesia QIA, GIC Others
Facebook,
Zulal 2020 Gojek 375.0 Indonesia
A’Saffaa PayPal
2015 63.3 Oman Investments
Foods
Co. Sequoia
Kopi Capital,
Undisclosed 2020 209.0 Indonesia
2019 Meezan Bank 58.6 Pakistan Kenangan Horizons,
Investors
GIC, Others
Gobi
Partners, Asia Growth
2019 Carsome 50.0 Malaysia Endeavor FinAccel Pte Fund,
2019 90.0 Singapore
Catalyst, Ltd Singtel,
Others Others
Gateway Kitopi Catering

2020 Tim Hortons 50.0 UAE 2020 60.0 UAE Knollwood
Partners Services
Temasek,
Undisclosed 2020 Sociolla 58.0 Indonesia
2020 PT Mitrausaha 40.4 Indonesia Others
Investors
Accel
Prima Partners,
2018 38.1 Indonesia Asabri
Cakrawala 2018 HolidayME 40.4 UAE F&C
Investment,
Wuhui Henan Others
2015 Shuanghui 32.8 China Shuinghui
Food Investment Temasek,
2019 Sociolla 40.0 Indonesia
EV Growth
Kingsley Gulf
Capital, 2020 Vezeeta.com 40.0 Egypt Capital,
Janan Halal
2016 30.5 UK ESO Others
Meats
Capital
Partners 2020 Jahez 36.5 KSA Impact46
Source: Company Websites, Crunchbase, Salaam Gateway Source: Company Websites, Crunchbase, Salaam Gateway
Shariah-compliant PE Fundraising Activity Remains Weak
Shariah-compliant PE fundraising forms a small part of total PE fundraising in Islamic

jurisdictions. The aggregate capital raised by Shariah compliant funds has declined in recent
years. In 2019, US$ 0.1 billion was raised from a single fund in 2019 compared to US$ 0.6
billion raised through four funds in 2018. After the collapse of Abraaj Capital in 2019, the
prominent PE funds in the space include Amanah, Amwal, Citadel Capital, Global
Investment House, Fajr Capital, COPE PE, Gulf Capital, Injazat Capital, Investcorp, Sana
Capital and a few captive Shariah compliant funds that are operated by the major Islamic
banks in the GCC and SE Asia222.
222
Islamicfinancenews.com- Islamic Venture capital on the way up, Islamic private equity on way out.
Exhibit 57: Shariah-Compliant PE Fundraising (2015-2019)
Year No. of Funds Closed Aggregate Capital Raised ($bn)

2015 3 0.27
2016 1 0.32
2017 3 0.19
2018 4 0.55
2019 1 0.05
Source: Salaam Gateway, Preqin
6. Demand Drivers
Post Pandemic Recovery
The outbreak of the novel coronavirus (COVID-19) has caused significant damage to global
The global economy is economies. In addition to affecting human lives, the pandemic has impacted businesses and
expected to rebound and is financial markets across the globe and triggered a recession as countries were brought to a
projected to accelerate at a standstill. The effect of the pandemic arguably presents the most significant shock to the
pace of 6.0% in 2021, followed financial system since the global financial crisis. As a result, unemployment rates soared
by a growth of 4.4% in 2022 with many nations recording a sharp spike in job losses during the year223. Given the scale
of disruption, both advanced economies as well as developing nations are facing a
recessionary phase. Each region is subject to substantial downgrades as the pandemic is
expected to have a lasting effect on human capital, financial systems, trade, tourism,
education and healthcare. The IMF, in its April 2021 World Economic Outlook (WEO)
update, estimated a 3.3% contraction in global GDP for 2020. However, the global economy
is expected to rebound and is projected to accelerate at a pace of 6.0% in 2021, followed
by a growth of 4.4% in 2022224.
Exhibit 58: Global Economy Growth Forecast
Source: IMF World Economic Outlook, April 2021 Update

Note: E = Estimated; P = Projected; E&D = Emerging and Developing; LATAM = Latin America; ME = Middle East
Weakened business and economic activity due to lockdowns aimed at curbing the spread
of the pandemic resulted in weakening global demand for oil. This led to the governments
and the Central Banks across the major Islamic economies, especially in the GCC, to
respond via stimulus packages and fiscal and monetary policy easing measures225. To deal
with the economic crisis, Central Banks across the globe also announced various measures
for liquidity support to the banking sector, including lowering reserve requirements, lowering
of the regulatory capital buffer, bond/sukuk buying programs, and availability of Central Bank
credit lines (reverse repo). At the same time, the economic slowdown led to a sharp decline
in household savings and investments. Consequently, the Islamic finance assets recorded
a rather muted performance in 2020. However, with the IMF upgrading its global economic
223
Source: “Coronavirus: How the pandemic has changed the world economy”, BBC News, January 24, 2021
224
Source: World Economic Outlook Update: April 2021, IMF
225
Source: “Tracking the $9 Trillion Global Fiscal Support to Fight COVID-19”, IMF, May 20, 2020
growth forecast for the second time in three months is likely to boost consumer confidence
and investments, driving the demand for Islamic finance assets.
Islamic Capital Markets, Banking and Funds Driving Industry Growth
Emergence of new Islamic The Islamic finance industry has been growing at a modest pace over the past few years
and in 2019, the sector recorded double-digit growth globally across segments. Total global
Banks in markets such as the
Islamic financial assets grew 14.4% in 2019 to reach US$ 2,875 billion, fueled by higher
UK, Uganda, Tajikistan and
sukuk issuances. The sukuk market, comprising 19% of total global Islamic finance assets,
others are likely to boost grew 14.5% during the year and surged by 18.3% in terms of issuance value. The
offerings emergence of new avenues such as green sukuk and Socially Responsible Investing (SRI)
are likely to drive growth as higher attractiveness of the issuances lead to more issuances.
Going forward, core markets across the MENA and SE Asia regions could see higher
issuances, as well as non-core markets such as Kazakhstan and Uzbekistan. Islamic Funds
also had a spectacular run, growing 29.6% in 2019, largely driven by the onset of Islamic
ETFs and growing accessibility of ESG-related investment assets via digital mediums226.
Islamic Funds are likely to further fuel growth on the back of the growing interest in ESG and
sustainable considerations in investment227. Meanwhile, Islamic Banking, comprising 69.3%
of total global Islamic finance assets, grew 14.2% in 2019 with non-core markets witnessing
the fastest growth228. The emergence of new Islamic Banks in markets such as the UK,
Uganda, Tajikistan and others are likely to boost offerings229. Growth is also likely to be
aided by the newly introduced Shariah-compliant banking laws in the Philippines230.
Favorable Muslim Demographics Boosting Demand

The global Muslim population remains one of most significant drivers of growth for the
Islamic Finance industry. Muslims account for the second largest religious population group
Muslims account for the (26%) in the world, with the global population reaching ~1.9 billion as of 2020231. This
second largest religious population’s influence goes beyond the Organization of Islamic Cooperation (OIC) nations,
population group (26%) in the with over 500 million Muslims comprising minorities in many countries. The Muslim
world; Young Muslim population is also characterized by millennials - Muslims had the youngest median age of
all major religious groups at 24, nearly eight years less than the median age of 32 for non-
population has been boosting
Muslims. The Muslim population is projected to remain relatively young in 2050 as well, with
demand for Shariah-compliant
only 16% being over 60 years of age, while 24% fall in the 0-14 age bracket and 60% in the
and Islamic financial products 15-59 bracket. In comparison, the total world population is expected to see 22% over 60
and services years of age by 2050, with 20% in the 0-14 age group and 58% aged 15-59. Moreover,
Muslims are projected to make up a majority of the population in 51 countries by 2050232.
The rapidly growing young Muslim population has been boosting demand for Shariah-
compliant and Islamic financial products and services. Muslim youths are increasingly
demanding the wide range and functionality of convenience-focused products available in
conventional financial institutions such as internet banking, mobile banking and multiple
credit card products, in addition to Shariah compliance. The preference among the new
generation of Muslims regarding digital banking services and product offerings have
compelled the industry stakeholders to strategize according to the growing demand233.
226
Source: ICD-Refinitive Islamic Finance Development Report 2020
227
Source: “Islamic Finance And ESG The Missing 'S'”, S&P Global, May 20, 2019
228
Source: ICD-Refinitive Islamic Finance Development Report 2020
229
230
Source: Islamic Banking Act passed in the Philippines”, ZICO Law, November 25, 2019
231
Source: The Muslim 500: 2021 Edition, October 20, 2020
232
Source: “The Future of World Religions: Population Growth Projections, 2010-2050”, Pew Research, April 2, 2015
233
Source: “Millennials to drive the future of Islamic finance”, Bobs Guide, April 11, 2018
Rising Prominence of Ethical Consumerism
Consumers spent over US$ 2.0 The global Islamic economy is driven by consumers whose preferences are influenced by a
value system encouraging halal consumption across food, clothing, finance, cosmetics,
trillion in halal food, clothing,
pharmaceuticals, tourism, media and recreation. Consumers spent over US$ 2.0 trillion on
finance, cosmetics,
these sectors in 2019234. The user-base adhering to such ethos is predominantly the Muslim
pharmaceuticals, tourism, population, which is largely driving the growth in consumption of halal products.
media and recreation in 2019
The global trend of ethical consumerism has grown in popularity in recent years, leading to
higher appeal of Islamic products for ethical consumers. A 2019 study showed that in the
UK, total ethical spending had risen almost 4x in the past 20 years, outgrowing all UK
household expenditure235. Meanwhile, a global study indicated that 66% of respondents are
willing to pay more for ethical/sustainable products, while over 50% are influenced by key
sustainability factors, and 56% influenced by a company’s commitment to social value236.
The uptick in demand for ethical consumerism is likely to attract a new class of consumers
that are driven by social consciousness, trickling down to higher demand for Islamic
financing, investment, insurance services, and Islamic financing platforms237.
Government Initiatives Buoying Industry Expansion

In recent years, many governments strengthened the Islamic finance sector through
Governments across the globe
targeted initiatives. Governments across the globe have taken particularly bold measures to
have taken particularly bold
support the Islamic FinTech ecosystem238, encourage digitalization of banks, boost
measures to support the tokenization of sukuks, and bolster growth in markets that are rising in prominence such as
Islamic FinTech ecosystem Islamic social finance and ESG or impact investments239. The regulatory framework around
Islamic finance has also been modernized with new and amended laws to bolster the
industry. In 2020, the UAE launched an initiative to build a unified global legal and legislative
framework for the Islamic finance sector to expand its reach amid calls for improved
standardization240. Recently, Kuwait’s parliament approved a proposal to establish a
Shariah board that would regulate the banking sector and ensure banks’ adherence to
Islamic law241, while Qatar’s Central Bank announced plans to centralize its Islamic finance
sector242. Malaysia’s Central Bank issued a guidance document on Value-based
Intermediation Financing and Investment Assessment Framework (VBIAF), to assist in
deploying a risk system evaluating financing and investment activities of Islamic financial
institutions243. Meanwhile, the Securities and Exchange Commission of Pakistan (SECP)
approved regulations for Murabaha Share Financing in a bid to strengthen capital markets,
boost Shariah-compliant financing and liquidity in the securities market244.
Apart from regulatory developments, industry stakeholders across several countries led
initiatives that were aimed at strengthening their Islamic Finance markets. In May 2020,
South Africa announced working on a rand-denominated sukuk for the financial year 2020-
21245. In January 2020, Indonesia’s National Islamic Finance Committee (KNKS) reinforced
its new strategy on Islamic finance development, Islamic social finance development, the
234
235
Source: “UK ethical consumer spending hits record high, report shows”, The Guardian, December 30, 2019
236
Source: The Sustainability Imperative, Nielson, October 2015
237
238
Source: Leveraging Islamic Fintech to Improve Financial Inclusion, World Bank Group, October 2020
239
Source: State of The Global Islamic Economy Report 2020/21, DinarStandard & Salaam Gateway
240
Source: “UAE launches initiative to build unified global legislative framework for Islamic finance”, Khaleej Times,
May 6, 2020
241
Source: “Kuwait approves sharia board to regulate banking sector”, Arabian Business, February 20, 2020
242
Source: “Qatar to centralise Islamic finance sector regulation”, International Finance, August 16, 2019
243
Source: “Value-based Intermediation Financing and Investment Impact Assessment Framework - Guidance
Document”, Malaysia Central Bank website, November 1, 2019
244
Source: “SECP Approves Murabaha Share Financing Regulations for the Capital Market”, Pro Pakistani, August
19. 2019
245
Source: “South Africa working on rand-denominated sukuk issue”, Ifaas, May 16, 2020
halal products industry development, and on increasing Islamic business activities246.
Expansion and growth strategies have started materializing with Malaysia’s biggest Islamic
bank, Maybank Islamic, establishing its first overseas branch in Dubai247, and Malaysia’s
electronic government service provider MyEG setting up a new subsidiary for Islamic
financing activities such as Islamic financial leasing and other credit-granting activities248.
Such measures, primarily aimed at enhancing and augmenting the Islamic finance market,
are likely to drive growth and helps create efficient and smoother functioning of the markets.
Amid the COVID-19 pandemic, governments and Central Banks of Islamic finance markets
announced many stimulus packages to combat the pandemic. Some of the most prominent
measures include Saudi Arabia’s SAR 50 billion (US$ 13.3 billion) package249, the UAE’s
US$ 27 billion stimulus package later boosted to US$ 70 billion250, Malaysia’s MYR 305
billion (US$ 73.8 billion) in economic stimulus measures251, and Indonesia’s government-
led financial assistance initiatives252, among others.
COVID-19 Pandemic Fueling Acceleration in Digital Solutions

With the onset of COVID-19, governments across major Islamic finance markets were quick
Continuous adoption and
to adopt digitization in order to sustain and expand the sector. Over the past year, technology
integration of new and
adaption became one of the most critical drivers of survival, and many banks and financial
emerging technologies is likely organizations turned to integrating technology in order to seamlessly provide services.
to accentuate and streamline Concurrently, there was a surge in the deployment of digital solutions within Islamic finance.
the Islamic finance market Islamic banks offered mobile banking and virtual advisors/robo-advisory services to counter
concerns over lockdowns and bank closures, and also introduced services such as remote
account opening for deposits and credit cards, conducting webinars for client, selling mutual
funds, takaful products and other products online253. There was also a rise in new digital
platforms that facilitated online trading and investment, as well as platforms offering online
insurance (Takaful) services.
Digital solutions in Islamic finance domain have been on the rise prior to the pandemic as
well, with Qatar Islamic Bank introducing their digital onboarding services in 2019 through a
mobile app for improved access254. However, developments remained at nascent stages
and services were largely accelerated post-pandemic. In February 2020, the Central Banks
of the Philippines and Indonesia signed a MoU declaring their cooperation within the domain
of payment systems and digital financial innovation255. Meanwhile Saudi Arabia, who had
issued added licensing requirements and guidelines for building digital-only banks in
February 2020, is now set to witness the establishment of a new Saudi Shariah-Compliant
Digital Bank256. The continuous adoption and integration of new and emerging technologies
is likely to accentuate and streamline the Islamic finance market, as digital solutions offer
improvements in accessibility and efficiency, along with assisting Islamic finance entities to
enhance and broaden their service offerings. This is likely to drive demand within the sector.
246
Source: “Indonesia’s KNKS to be renamed National Sharia Economy and Finance Committee to be headed by VP
Ma’ruf Amin”, Salaam Gateway, January 20, 2020
247
Source: “Maybank Islamic opens first overseas branch in DIFC”, Khaleej Times, February 10, 2020
248
Source: “MyEG incorporates new subsidiary to undertake Islamic financing activities”, the Edge Markets, June 26,
2019
249
Source: “UAE, Saudi central banks roll out $40 billion stimulus for virus-hit economies”, CNBC, March 15, 2020
250
Source: “UAE central bank boosts anti-coronavirus stimulus to $70 billion”, Reuters, April 5, 2020
251
Source: “Malaysia finance ministry says stimulus measures to add 3.7%-4% to 2020 GDP” Reuters, September 25,
2020
252
Source: “COVID-19: Indonesian Government Financial Assistance Measures”, White Case, May 14, 2020
253
Source: “Islamic banking is getting its perfect storm moment”, Gulf News, January 28, 2021
254
Source: “QIB launches digital onboarding for new customers through mobile application”, QIB, June 24, 2019
255
Source: “The Philippines and Indonesia sign MOU on digital financial innovation”, OpenGovAsia, February 10, 2020
256
Source: “Shariah-Compliant Digital Bank to be Established in Saudi Arabia by a Consortium of Banks”, Islamic
Markets, February 16, 2021
7. Emerging Themes
Islamic FinTech
The implementation of financial technology (FinTech) in Islamic finance has increased over
As of 2020, Islamic FinTech in
the last few years, largely supported by digitalization of Islamic financial services and the
OIC countries accounted for
issuance of FinTech-related sukuk. Islamic FinTech has thus emerged as a promising
US$ 49 billion in transaction segment that has not only overhauled traditional methods of offering financial services, but
volume also transformed business models, operational models and customer experience257.
Partnerships and collaborations with FinTechs have continued to grow as financial
institutions are leveraging the avenue to expand their market presence258. This, in turn, has
increased investors’ appetite towards the technology domain. 2019 was a landmark year for
the sector as it witnessed major funding rounds for FinTechs such as IslamicMarkets.com,
Wahed Invest and Yielders259. For 2020, highlight of the year remained the acquisition of
UK-based Niyah by US-based FinTech provider Wahed Inc. The strong investment
dynamics are expanding the reach of Shariah-compliant financial products and services,
while also leveraging ethical financial platforms catered to the Muslim community. In the OIC
countries, Islamic FinTech has become the fast-growing segment of financial technology,
with the UAE and Saudi Arabia leading in terms of transaction volume260. As of 2020, Islamic
FinTech in OIC countries accounted for US$ 49 billion in transaction volume, constituting
0.7% of global FinTech transactions261. s
Exhibit 59: Islamic FinTech by Sector (2019/20)
There are around 241 Islamic FinTech firms globally that cater to bridge the gaps of financial
There are ~241 Islamic FinTech
inequality, exclusion, and poor customer experience262. Majority of the FinTechs (44 firms)
firms, majority of which focus
focus on raising capital through P2P and crowd funding platforms. These platforms are
on raising capital through P2P
easily scalable, use technology to directly connect investors with users of capital, and fit well
and crowd funding with a profit-sharing model. Therefore, this segment has become the top growth contributor
257
Source: “Leveraging Islamic FinTech”, World Bank, October 2020
258
Source: Islamic Fintech Report 2018, DinarStandard
259
Source: The Global Islamic FinTech Report 2019, Elipses & Salaam Gateway, December 2019
260
Source: “Islamic FinTech is on the rise in Saudi Arabia, UAE and globally”, Arabian Business, March 21, 2021
261
Source: Global Islamic Fintech Report 2021, DinarStandard, Elipses & Salaam Gateway, March 19, 2021
262
of Islamic FinTech in recent years. Deposit and Lending is the second most popular segment
for FinTechs (40 firms), wherein the focus lies on providing services to the underserved
market. This segment has been largely driven by the rise in number of Islamic digital banking
solutions introduced across the globe by traditional banks263. For instance, Niyah and Rizq
were launched in the UK during 2020, with Niyah being recognized as the country’s first
FinTech Islamic Banking app and ethical financial marketplace. Wahed’s recent acquisition
of Niyah will expand customer offerings through access to interest-free financial products,
and investments through a mobile app264.
Wealth management and Payments segments are also gaining popularity with robo-advisory
The GCC wealth management
leading the market trend. Primarily concentrated in developed markets such as the US and
market is undergoing a
the UK, the technology has started to make inroads in other parts of the world as traditional
transformation as regulators financial institutions and FinTech firms seek to tap the segment’s potential. Within the MENA
embrace digital financial region, especially GCC, the wealth management market is undergoing a transformation as
advisories regulators embrace digital financial advisories offered by robo-advisors. The UAE and
Bahrain have introduced broader policies that foster the technology, while others are also
supporting it for wider investment practices265. Consequently, several institutions in the
region are collaborating with robo-advisory firms to offer more personalized solutions to their
customers. For instance, Saudi Arabia’s SaaS banking platform Mambu and Islamic trade
finance FinTech Ta3meed aim to deliver innovative digital Islamic financing for regional
SMEs and investors266. The inclusion of ESG and impact investing options are likely to boost
these two segments not only in the developed markets of Europe and North America but
also across the emerging Islamic markets267.
Exhibit 60: Top 5 Islamic FinTech Countries by Market Size (US$ billion, 2020)
The top five markets (Saudi Arabia, Iran, UAE, Malaysia, and Indonesia) account for 75%
(US$ 36.7 billion) of the total OIC market size (US$ 49 billion). Besides the OIC countries,
Islamic FinTech is also flourishing in countries such as UK, USA and Singapore. These
263
264
Source: “Islamic fintech Wahed Invest enters challenger bank race with Niyah acquisition”, Finextra, December 17,
2020
265
Source: “Robo-advisors set to shake up region’s asset management industry”, Banker MiddleEast, April 01, 2021
266
Source: “The adoption of Islamic fintech in Saudi Arabia”, Mambu website, January 20, 2021
267
emerging countries in Islamic FinTech rank high on various factors such as talent pool,
regulatory environment, and digital capabilities, among others. Malaysia, Saudi Arabia,
UAE, Indonesia and the UK have the strongest Islamic FinTech ecosystem while Kuwait,
Pakistan, Qatar, Bahrain, and Jordan are fast maturing markets268.
Growth in the segment has been further supported by the COVID-19 pandemic, which
Growth in the segment has
accelerated the adoption of digital technology. This shift is likely to be more pronounced in
been further supported by the
GCC and SE Asian countries, which are actively encouraging the development of their
COVID-19 pandemic, which Islamic FinTech ecosystems. Indonesia and Malaysia signed an agreement for FinTech
accelerated the adoption of cooperation in August 2020 to establish a collaborative framework for developing the
digital technology FinTech environment in both markets269. Active government support in Malaysia too is
helping foster a strong ecosystem for Islamic FinTechs. For instance, Bank Negara
Malaysia, BNM (Malaysia Central Bank) and the Securities Commission have allowed for
innovation in FinTech to support such expansion270. Other Islamic markets within the GCC
have emerged with an expanse of accelerators and incubators such as the DIFC FinTech
Hive in Dubai, ADGM in Abu Dhabi, and Bahrain’s Fintech Bay. In Saudi Arabia, the Central
Bank allowed nine more FinTechs into its regulatory sandbox in 2020. Similarly, the Central
Bank of Oman, launched a new FinTech regulatory sandbox in December 2020. These
entities are fostering a friendly environment for Islamic FinTech entrepreneurs by offering
mentorship, investor access, shared working spaces and more271.
Consequently, Islamic FinTechs are growing within areas such as merchant platforms,
The adoption of FinTech in
charitable platforms, equity crowdfunding, group lending and digital banking services.
Islamic finance markets has
Islamic FinTech start-ups now offer digital mortgage platforms, wealth management mobile
also led to the emergence of applications, and sharia-compliant crypto-currency exchanges. Notably, blockchain has
cryptocurrency exchanges been a key FinTech technology due to its vast applications and yet relatively untapped
potential272. Blockchain developments in Islamic finance include blockchain zakat systems,
blockchain-enabled halal certification schemes273, and the first blockchain-based sukuk
issuance in 2019 by Indonesian microfinance firm BMT Bina Ummah that raised IDR 710
million (US$ 48,747) through Blossom Finance’s SmartSukuk platform274. Blockchain has
potential in applications such as automating Shariah contracts execution, issuing smart
sukuks, and improving tracking and transparency of Islamic charitable funds275. The
adoption of FinTech in Islamic finance markets has also fueled digitalization strategies
among Islamic banks, and the emergence of cryptocurrency exchanges such as Bahrain-
based RAIN, Adab Solution and CoinBundle (Halal Bundle); robo-advisory investment
platforms (Wahed Invest, Aghaz Investments), gold-backed blockchain platforms
(HelloGold), and several digital payment providers and digital wallets, among others.
268
269
Source: “Malaysia and Indonesia ink fintech co-operation pact”, FinExtra, August 24, 2020
270
271
Source: “Islamic banking is getting its perfect storm moment”, Gulf News, January 28, 2021
272
273
274
Source: “Blockchain development may facilitate market growth for Islamic financial instruments”, Reuters, August
3, 2020
275
Non-Cyclical Halal Markets
The Islamic economy is being driven primarily by the increasing youth population with high
The growing number of halal-
disposable incomes. The demographic has been strongly contributing to the growth of the
certified products are driving
halal market. Geographically, the persistently strong demand for halal consumer goods
the global halal market; Halal
among the MENA and SE Asian markets, in addition to rising demand from the Western
food, cosmetics, and pharma countries, have led to the rising demand for halal products and services. Economic
are growing in prominence development of leading Muslim countries such as Saudi Arabia, Indonesia, Malaysia, India,
Pakistan, Nigeria, and Iran have particularly supported the market. In addition, the growing
number of halal-certified products are driving the global halal market276. The confluence of
these factors are boosting various segments of the halal market including food, cosmetics,
and pharmaceuticals, among others. These sectors primarily acts as a hedge against the
cyclical sectors such as Real Estate, which are highly correlated to oil prices. Being
defensive in nature, these sectors remain resilient to economic disruptions and other crisis,
making them a strong investment target for investors.
Halal Food
Halal food has evolved from an identification mark of religious observation to an assurance
Muslim spend on halal food
of food safety and hygiene over the years. This has attracted interests not only from the
increased by 3.1% in 2019; The
growing Muslim population, but from the non-Muslim population as well. Additionally, the
sector recorded total
growing number of countries implementing stringent regulations in favor of globally accepted
investments of US$ 6.1 billion standards for halal food are helping bring new entrants in the market277. The overall Muslim
in 2020 through 61 deals spend on halal food increased by 3.1% in 2019 to reach US$ 1.2 trillion, up from US$ 1.1
trillion in 2018. Indonesia, Bangladesh, Egypt, Nigeria and Pakistan are the highest
spenders on halal food across the globe. In 2020, the sector recorded total investments of
US$ 6.1 billion through 61 deals globally. Malaysia (16) led the deals in halal food market,
closely followed by Indonesia (10) and the UAE (8)278.
Exhibit 61: Top Halal Food Consumer Markets (US$ billion, 2019)
276
Source: “How the Halal Consumer Market is Developing with the Growing Muslim Population and Islamic
Economies”, Muslim and Network, October 4, 2019
277
Source: “Halal Food Market”, imarc, 2020
278
However, the COVID-19 pandemic has impacted the global halal food industry. Imposed
lockdowns and restrictions on travel, coupled with household budget-cuts during Ramadan
and Eid-al-Adha, is estimated to have caused a US$ 3 billion loss to the global Halal trade279.
The supply-chain disruptions caused by the pandemic also raised the need for local
production while creating demand for automating supply chains and manufacturing and
adopt cost-reduction technologies. For this, a number of companies have already taken
steps to optimize supply chains and bring in digital transformation280. Several halal
ingredient manufacturers are now moving their production closer to the key halal markets.
Some of the notable examples include the development ASEAN’s first halal gelatin plant
and industrial park in Malaysia by Sanichi Technology at a cost of US$ 300 million281. Japan-
based Takasago282 and Ajinomoto283 are setting up halal production facilities in Indonesia
and Malaysia, respectively.
At the same time, the crisis has opened up opportunities for growth and investment within
The pandemic has opened up
the halal food industry. From clean and healthy food options to the need for quicker food
opportunities for growth and
delivery, themed cloud kitchens, food delivery, ready-to-eat, and online groceries have
investment within the halal become robust growth segments of the halal food market. A few notable examples include
food industry UAE-based cloud-kitchen platform, Kitopi, which raised US$ 60 million; expansion of the
US-based The Halal Guys through the cloud kitchen model; launch of the first European
multi-vendor marketplace for halal products, Deenary.com, in Italy; launch of M&S Food’s
own line of Western cuisine Halal ready-meals in the UK; and the IPO of Pakistan-based
halal meat exporter, The Organic Meat Co. Ltd., which was oversubscribed 1.7x284.
Several countries are introducing new halal food regulations and improving the existing
standards. One of the most prominent examples include the introduction of mandatory halal
certification and the establishment of the Halal Products Certification Agency (BPJPH) in
Indonesia285. A number of non-OIC countries are also partnering with OIC countries to tap
into the growing halal food market. For example, the partnership between Japan’s Mitsubishi
UFJ Financial Group (MUFG) and Malaysia’s Halal Industry Development Corp (HDC) will
allow 40 companies to participate in the Halal Industry Expert Development Programme286.
HDC also collaborated with the Malaysia External Trade Development Corporation
(MATRADE) in Chennai (India) to expand Malaysia’s presence in India’s Halal market287.
Separately, banks across SE Asian countries are supporting the industry through a number
of measures. For instance, the partnership between Standard Chartered Saadiq and
Malaysia’s HDC aims to help the local halal food industry grow beyond the country288.
Similarly, Modern Industrial Estate, the developer of Indonesia’s Modern Halal Valley (MHV),
partnered with four Islamic banks - Bank Mandiri Syariah, BRI Syariah, BNI Syariah and
Bank Muamalat Indonesia - to develop Indonesia’s first integrated halal industrial cluster289.
279
280
281
Source: “Sanichi to set up ASEAN's first JAKIM-certified halal gelatin plant in Melaka”, The Edge Markets,
December 02, 2019
282
Source: “Takasago unveils 100% halal production focus for its new Indonesia factory”, Food Navigator Asia,
January 15, 2020
283
Source: “Ajinomoto to open halal food plant in Malaysia in 2022”, NNA Business News, August 16, 2019
284
285
286
Source: “HDC to create bigger halal market space in Japan”, The Malaysian Reserve, December 12, 2019
287
Source: “Amid palm oil trade dispute, Malaysia goes in search of Indian buy-in for its halal expertise”, Salaam
Gateway, February 7, 2020
288
Source: “Standard Chartered Saadiq partners with HDC to catalyse growth of halal industry in Malaysia and
beyond”, The Edge Markets, July 02, 2020
289
Source: “Indonesian Company To Develop Halal Valley”, The Halal Times,
Halal Pharmaceutical
Muslim spend on total The growing Muslim population has led to an increased need for halal awareness within the
pharmaceuticals was valued at pharmaceutical industry. Moreover, the Halal pharmaceutical products are setting a new
standard of safety and quality, carving a niche not only in the Muslim-majority countries but
US$ 94 billion in 2019, up 2.3%
also beyond290. The Muslim spend on total pharmaceuticals was valued at US$ 94 billion in
y-o-y; Halal-related
2019, up 2.3% y-o-y. Turkey, Saudi Arabia, US, Indonesia, and Algeria are the highest
pharmaceutical investments spenders on halal pharmaceuticals across the globe. Halal-related pharmaceutical
recorded US$ 157 million in investments recorded US$ 157 million in 2020 from 9 deals. Egyptian companies led the
2020 from 9 deals investment space with 5 deals, followed by Indonesia (2), and Kuwait (1)291. However, the
COVID-19 pandemic impacted the industry, leading to a fall of 6.9% to US$ 87 billion in
2020 due to reduced demand.
Exhibit 62: Top Halal Pharmaceutical Consumer Markets (US$ billion, 2019)
Despite the weakness caused by pandemic, the halal pharmaceutical industry remains a
The halal pharmaceutical strong opportunity for leading manufacturers to tap on the burgeoning demand. As such,
industry remains a strong several established companies have entered the market through acquisitions, joint ventures
opportunity for leading and collaborations over the last two years. A few notable examples include the acquisition
manufacturers to tap on the of Malaysia-based medical device firm Vigilenz, which has seven halal-certified products by
burgeoning demand JAKIM (Department of Islamic Development Malaysia), by Swedish medical technology
company Bactiguard292. Malaysia’s Duopharma Biotech, government-backed investment
firm VentureTECH, and South Korea’s PanGen Biotech have also made investments in
development of the world’s first halal biosimilar for treating anemia293. Indonesia, in
particular, is a booming market for pharmaceutical companies as the country is phasing in
mandatory halal certification. For instance, South Korea’s Daewoong Pharmaceutical Co.
has created a joint venture with Indonesia’s Infion and obtained halal certification for
biosimilar, Epodion294. The joint venture between South Korea’s CKD Pharmaceutical Corp.
290
Source: “Everything You Need to Know About the Halal Pharmaceutical Industry”, Halal Watch World, February
23, 2021
291
292
Source: "Bactiguard makes its first acquisition by acquiring Vigilenz”, Bactiguard, February 04, 2020
293
Source: "World's First Halal Biosimilar to Be Produced in Malaysia”, AJMC, July 20, 2020
294
Source: "Daewoong Pharmaceutical Receives World's First Halal Certification for Biopharmaceutical Product
Derived from Animal Cells through Indonesian Joint Venture, Daewoong Infion”, PR Newswire, January 08, 2020
and Indonesia’s OTTO has also received halal certification for a plant manufacturing anti-
cancer drugs295.
Governments across the OIC member nations are also ramping up their policies to support
the development of halal pharmaceutical products. For example, Indonesia introduced the
Halal Product Guarantee Act in 2019, requiring mandatory labeling and certification of all
Halal chemicals and biological products296. Besides this, the OIC’s Standards and Metrology
Institute for the Islamic Countries (SMIIC) set up a new committee on halal pharmaceuticals
to improve the standardization process. Malaysia is a trailblazer when it comes to
certifications in its halal pharmaceutical industry, having produced the world’s first halal
certification for pharmaceuticals in 2012297.
Halal Cosmetics
Halal cosmetics industry has witnessed strong growth in recent years, backed by its
Muslim consumers spent
reputation of cleanliness, hygiene, and animal byproduct-free. Consequently, more brands
around US$ 66 billion on are seeking halal certification for cosmetics and personal care products to cater not only to
cosmetics in 2019, growing at the large Muslim population, but also to the non-Muslims consumers. In 2019, Muslim
3.4% y-o-y; Investments in the consumers spent around US$ 66 billion on cosmetics, growing at 3.4% y-o-y. India,
sector reached US$124.7 Indonesia, Russia, Malaysia, and Turkey are the highest spenders on halal cosmetics
million in 2020 across the globe. However, the COVID-19 pandemic impacted the cosmetics sales as
consumers were forced to stay indoors due to the imposed lockdowns. Spending on halal
cosmetics is expected to have dropped by 2.5% to US$ 64 billion in 2020. Investments in
the halal-related cosmetics sector reached US$ 124.7 million in 2020 from US$ 45 million in
the previous year with 3 deals in Indonesia (2) and Turkey (1)298.
Exhibit 63: Top Halal Cosmetics Consumer Markets (US$ billion, 2019)
E-commerce and synergy between halal cosmetics and modest fashion is further aiding
growth of this segment. Brands are also appealing to the wider market by adding vegan,
295
Source: " ChongKunDang Pharm dedicates anti-cancer drug plant, CKD-OTTO in Indonesia”, The Korea Post, July
12, 2019
296
Source: "Indonesia’s Halal Law Takes Effect, Impacting Products and Services”, Asean Briefing, October 25, 2019
297
Source: " Malaysia: World’s First Halal Certification for Prescriptive Medicine issued to CCM”, Halal Focus, February
02, 2017
298
organic labels and other beauty trends to their halal product offerings. Moreover, several
Halal cosmetic brands are also adopting inclusivity in response to the beauty needs of
women of different ethnicities. Indonesia is expected to be a major growth driver for halal
cosmetics with over 270 million inhabitants requiring halal labelling by 2024299.
SE Asia is the largest producer of Halal cosmetics with a 40% global market share, and
South Korea is among the largest exporters of halal cosmetics to OIC countries300. Very few
OIC countries manufacture halal cosmetics, constrained by weak government support301.
Governments in Indonesia and South Korea have taken significant steps in this regard. In
2019, Indonesia has mandated halal certification for all products that are halal. Similarly,
South Korean government is aiding the certification of cosmetics through Halal Certification
Bodies and pushing for higher exports to the OIC countries through joint ventures with halal
cosmetics companies in Malaysia and Indonesia302.
299
300
Source: “Halal cosmetics 2020: More traction in Asia led by demand from Malaysia, Indonesia, and exports from
South Korea”, Salaam Gateway, January 28, 2020
301
302
Source: “Halal cosmetics 2020: More traction in Asia led by demand from Malaysia, Indonesia, and exports from
South Korea”, Salaam Gateway, January 28, 2020
8. Industry Outlook
The COVID-19 pandemic highlighted the Islamic finance industry’s susceptibility to
A speedy and effective exogenous risks, as it was exposed to the severe implications of the pandemic in equal
response has now become measure as its conventional equivalent. Islamic financial institutions spent most of 2020
crucial to ensure profitability, coping with the dual shocks of adjusting to the pandemic and historically low oil prices.
as well as spur recovery and Consequently, the industry slowed down during the year after experiencing 14.4% y-o-y
growth in the industry growth in 2019. Total Islamic finance assets are estimated to have reached US$ 2.9 trillion
by the end of 2020, matching last year's figures303. Thus, a speedy and effective response
has now become crucial to ensure profitability, as well as spur recovery and growth in the
industry. The rise in technology adoption, digital solutions, data-driven decision-making and
data sharing across the banking, finance, capital markets and microfinance domains, are
likely to quicken this recovery and cement the industry’s overall resilience. Meanwhile,
Islamic social finance tools are likely to assert a more dominant role in the global market,
along with unique Islamic investment instruments such as sukuk, which can be leveraged
as alternate financing vehicle amid the COVID-19 induced slowdown.
Governments of major Islamic finance markets, in particular OIC nations, have been
Developments are likely to
spearheading this recovery through initiatives aimed at reforming the industry304. Nations
be strong towards tech
such as Pakistan, Kuwait and Qatar are working on plans for centralized regulations, while
infrastructure empowerment
other countries are forging national strategies aimed at boosting the role of Islamic finance
and development in the economy (e.g. Indonesia’s Islamic Economy Masterplan 2019-24). Among nascent
Islamic finance markets, Uzbekistan is witnessing a rise in demand for Islamic finance post
the setup of an Islamic financial institution, while others such as Morocco are issuing their
first Islamic sovereign sukuk. Although the industry lacks in terms of global standardization,
governments are likely to focus more towards infrastructure empowerment and
development. Amid these efforts, technology integration remains the key in fueling recovery
and growth in the Islamic finance industry. Digitization is disrupting business models across
the industry with services such as digital payment platforms and wallets to robo-advisory
services, insurance (takaful), digital currency exchanges (crypto) and sukuk, among others.
With new applications within AI, blockchain, and IoT being explored, fresh digital solutions
are likely to enhance the market attractiveness and further strengthen the industry. FinTech
has particularly taken off across major Islamic finance markets. The UAE, Saudi Arabia,
Malaysia and Indonesia, which rank among the most robust Islamic FinTech ecosystems
globally, continue to drive growth305. There remains growing room for further innovation and
collaboration, paving the way for higher profitability for Islamic finance institutions.
The impact of the crisis on Islamic banks is expected to be comparable to conventional

Sukuk market is expected
banks given the similarity of their business model. However, the sukuk market is expected
to gain momentum, fueled
to gain momentum, fueled by its applications as a financial tool to raise funding for
by its applications as a governments as well as corporates. The instrument witnessed record-breaking issuances –
financial tool to raise both public and corporate – over the past year, and this is likely to continue. Concepts such
funding for governments as as ESG/sustainable investing, and green sukuk are also rising in prominence and gaining
well as corporates mounting investor interest. Potential developments within such conceptual instruments are
likely to support growth in the coming years. Additionally, several new avenues have opened
up within Islamic investment, such as charitable trusts with a focus on specialized sectors
(e g. real estate), private equity, exchange-traded sukuk funds, Shariah-compliant Mortgage
Investment Funds, Halal Mutual funds and other Islamic funds. The wide offerings are likely
to appeal to a broader consumer base beyond the Muslim population, thus improving
demand prospects for Islamic instruments.
303
304
305
Integrating Islamic Social Most notably, the pandemic has highlighted the prominence of Islamic Social Finance tools.
Social impact-focused investments that are consistent with ESG considerations and
Finance tools with government
sustainable goals are expected witness rising demand. Regional and global humanitarian
policy will aid recovery
and development agencies such as the UNICEF, UNDP and UNHCR, are increasingly
deploying Islamic social funds through initiatives such as cash transfers, start-up capital,
funds for providing interest-free loans, micro-takaful and other forms of microfinance. Many
Islamic social finance initiatives have also been launched, such as the UNICEF and the
IsDB’s Global Muslim Philanthropy Fund for Children306, initiatives aimed at exchanges of
expertise between global philanthropic organizations307, forging zakat governance
standards, and accentuating other areas of Islamic philanthropy. Meanwhile, synchronized
efforts are being taken to integrate tools like Zakat, Sadaqah and Waqf with government
policies to improve the dissemination of financial aid amid the economic fallout. Instruments
such as Waqf are growing in popularity driven by innovations such as temporary cash Waqf
and corporate Waqf, which can be linked to government-issued sukuks. For instance, linking
a sukuk with a temporary cash Waqf can enable issuers to mobilize charitable funds at rates
lower than the market308. With Indonesia already having deployed a government-issued
cash Waqf-linked sukuk to fund infrastructure development309, this instrument holds promise
for future applications in the market. Islamic Microfinance is also developing across the
globe with new funding programs aimed at supporting SMEs impacted by the pandemic.
Going forward, Islamic Social finance tools are likely to play a significant role in ensuring
financial safety nets to accentuate the recovery for economies.
The next surge of growth for the Islamic finance industry is expected to be driven through
The next surge of growth innovation, standardization, and M&A activity310. In recent years, the Islamic finance sector
for the Islamic finance has recorded strong M&A activity in both the banking and takaful sectors, and consolidation
industry is expected to be is expected to continue amid the prevailing weak economic conditions, At the same time,
driven through innovation, new players are emerging globally with niche offerings, especially in nascent Islamic
standardization, and M&A markets. New Shariah-compliant Islamic Banks are receiving regulatory approvals and
activity licenses in countries such as Tajikistan and Turkey, while Africa is witnessing rising demand
for Islamic banking services. Newer markets are likely to drive growth as the core Islamic
countries grow towards maturity. On the other hand, investment activity is expected to
remain tepid, with majority skewed towards the FinTech sector as digital capabilities become
more critical due to COVID-19311. As several countries with huge Islamic FinTech potential
rank among the top 50 nations in global mobile phone penetration, there is a huge
opportunity to bridge the accessibility gap for the unbanked population312. The rise in Islamic
FinTech’s popularity is also prompting a surge in FinTech-focused investment funds such
as the US$ 50 million MEC Ventures Fund launched by Bahrain’s Al Salam Bank in
partnership with China’s MSA Capital313. Such funds are likely to accentuate the market and
create opportunities for Islamic FinTechs to expand services.
The COVID-19 induced slowdown as well as financial vulnerability in jurisdictions where

Islamic banking is practiced are envisaged to put the industry’s resilience to test in 2021 and
beyond. Nevertheless, an optimistic outlook by the IMF on global economic recovery
coupled with prudent measures by the governments are expected to spur a recovery.
306
Source: “UNICEF and the Islamic Development Bank launch first global Muslim philanthropy fund for children”,
UNICEF, September 26, 2019
307
Source: “AAOIFI And UNHCR Sign an MOU For Joint Initiatives and Collaboration to Enhance Islamic Social
Finance”, UNHCR, June 14, 2020
308
Source: The Covid-19 Crisis And Islamic Finance Discussion Draft, Islamic Development Bank, September 2020
309
Source:” Government Issued First Cash Waqf-Linked Sukuk in 2020, KarimSyah, April 22, 2020
310
Source: "Islamic Finance After COVID-19”, Global Finance, December 28, 2020
311
312
Source: Leveraging Islamic Fintech to Improve Financial Inclusion, World Bank Group, October 2020
313
Source: “Al Salam Bank and China's MSA Capital launch $50 million regional venture fund”, Wamda, November
20, 2019
Glossary
Corporate Sukuk: Sukuk that is issued by a company to finance different projects or to
expand its business is called as corporate Sukuk.
Dimishing Musharkah: It is a form of partnership used mostly when one party wants to
own an asset or a commercial business but does not have adequate funds, taking the
assistance of financing from another party. The share of the financier is divided into a
number of units such that the client purchases these units periodically until he becomes the
sole owner. Here, all partners are co-owners of every part of the asset on a pro-rata basis
and one partner cannot make a claim to a specific part of the asset.
Faraid: Generally applied to the assets of a deceased Muslim except for assets that have
been given away under the deceased’s Will (Wasiat) and certain other ‘excluded’ assets.
The rules of Faraid ensure that the assets of a deceased Muslim are distributed among
his/her beneficiaries (Waris) fairly and equitably. It is forbidden (haram) for any Muslim to
disobey or disregard Faraid.
Fatwa: A fatwa is a non-binding legal opinion on a point of Islamic law given by a qualified
jurist in response to a question posed by a private individual, judge or government.
Green Sukuk: Green Sukuks are Shariah compliant investments in renewable energy and
other environmental assets.
Halal: An Arabic term that means lawful or permitted. It is the opposite of word ‘haram’ and
just like the term, it is universal and applies to all facets of Muslim life. The term is used to
refer to food products, meat products, cosmetic, personal care products, pharmaceuticals,
food ingredients and food contact materials among others.
Halal certification: Means that the food or product adheres to Islamic law and no ‘haram’
product/procedure was used in its manufacturing/processing. While each country has its
own certification body, efforts are being taken to develop a universal halal standard.
Iljarah: A mode of finance where the bank purchases an asset or equipment, and leases it
to the client at a price that includes a fair return for the bank. While this is commonly used
for financing consumer goods, equipment and vehicles, home financing, it is also used for
project and transportation financing and into asset-based financing in larger and more
complex transactions. The client may have to purchase the asset at the end of the lease
period, and normally does not have the option to purchase the asset in installments.
Istisna: Under this transaction, the bank acts as a financer to the client who manufactures
goods for the bank and upon delivery of the goods, the client is appointed as an agent of
bank to sell those goods in the market.
Mirath: Islamic law on inheritance (Mirath), based on the Quran, requires that Muslim
women receive specifically regulated inheritance shares and permits inheritance to pass
through the female line.
Mudarabah (Agencies): Here, the banks provide complete financing, while the customer
only contributes his managerial efforts and labor. Both the parties are entitled to profits in
pre-determined ratios, while the burden of a financial risk is only borne by the bank. Banks
may require a security in such cases.
Murabaha: Also referred to as cost + financing, wherein the bank purchases a commodity
in order to supply it to a customer who is not financially able to make such a purchase
directly. The bank then sells the commodity to the customer for cost plus profit — the profit
being a markup that both the bank and customer agree on upfront. The bank is allowed to
take assets as security against potential future default by the client.
Musharkah (Equity Participation): Similar to a joint venture, banks and their clients enter
in a temporary agreement for effecting a project for an agreed period. Both the parties
contribute to the capital in varying degrees (including assets, management, working capital
etc.), and agree to share the net profit in proportions agreed upon in advance.
Qard: Refers to a contract of lending money by a lender (Customer) to a borrower (Bank),

where the latter is bound to repay an equivalent replacement amount to the lender. In this
situation, the bank is guaranteeing the repayment of the money, returning the same to the
lender accordingly, subject to the Bank’s procedures.
Qard al-Hasan: Refers to an interest free loan. In a Qard al-Hasan transaction, the borrower
repays the principal amount of the loan without interest, mark-up, or a share in the business
for which the loan was used. This product is consistent with the Sharia prohibition against
riba because the borrower is not compensating the lender for the money advanced.
Quasi-Sovereign Sukuk: Sukuk that is issued by a public-sector entity with partial or full
government ownership or control and may carry implicit or explicit government guarantee.
Salam: A form of forward contract where the bank buys certain goods and pays for it upfront,
setting the delivery at a future date.
Shariah: Refers to a set of principles and guidelines in Islam that governs aspects of day-
to-day life for Muslims in addition to religious rituals.
Shariah Board: Also called Shariah Supervisory Board or Religious Board, which primarily
advises and certifies the Islamic financial products as being Sharia-compliant by reviewing
the related contracts and provides an opinion about whether those agreements would be
permissible under the Islamic law.
Sovereign Sukuk: Sukuk that is issued by a national government usually in foreign currency
is called as Sovereign Sukuk, whereas Sukuk issued in their own domestic currency is
referred to as government Sukuk.
Sukuk: A sukuk is an Islamic financial certificate, similar to a bond in Western finance, which
complies with the Islamic religious law.
Sustainable and Responsible Investment (SRI) Sukuk: SRI Sukuk was introduced by the
Securities Commission of Malaysia in 2014 to facilitate the creation of an ecosystem that
promotes sustainable and responsible investing for investors and issuers.
Takaful: It is a type of insurance system devised to comply with the Shariah laws, in which
money is pooled and invested.
Tawarruq: Here, a buyer purchases a commodity from a seller on a deferred payment basis
(borrowing the cash from a bank to make this payment), and then sells the same commodity
to a third party on a spot payment basis. Later, when he secures the cash from the second
transaction, the buyer pays the original seller the installment or lump sum payment he owes
(which is cost plus markup, or Murabaha).
Wadiah: This type of accounts correspond to safekeeping, custody, deposit and trust.
Wadiah refers to the deposit of funds or assets by a person in an Islamic bank where the
depositor deposits his funds or assets with the bank for safekeeping and in most of the
agreements, is charged a fee by the bank. The basic types of Wadiah are - Wadiah yad
amanah where property is deposited based on trust; and Wadiah yad Dhamanah where
savings are deposited with guarantee.
Waqf (Endowment): A special kind of philanthropic deed in perpetuity. It involves donating
a fixed asset which can produce a financial return or provide a benefit. The revenue or
benefit generated then serves specific categories of beneficiaries. Muslims giving Waqf
typically donate a building, land or cash with no intention of reclaiming the value gained from
them. A charitable trust may hold the donated assets.
Wassiyah: The assignment of wealth after death to some beneficiaries of choice. It

constitutes the statement of a muslim in which they plan on their wealth distribution to heirs
after death.
Zakat: A religious obligation, ordering all Muslims who meet the necessary criteria to donate
a certain portion of wealth each year to charitable causes. Zakat is based on income and
the value of possessions. The common minimum amount for those who qualify is 2.5%, or
1/40 of a Muslim's total savings and wealth. If personal wealth is below the nisab during one
lunar year, no Zakat is owed for that period.
Description of Calligraphy Concepts
Who toil succeeds Learn and then speak Heart & Sight
I suffered, I learned and Prevail Balance

changed
Gain
Wissam Shawkat
Born in Basra, Iraq in 1974, for Wissam Shawkat it was the form of four letters from the Arabic alphabet written across a school
blackboard that started him on a journey that has shaped him both in early years and adulthood. He recalls finding peace and
patience writing and repeating calligraphic letters on the dusty tiles of a makeshift shelter during a heavy aerial bombardment
and, spurred on by supportive parents, he became his own tutor.
His teen summers were spent lettering for a local sign shop before he began studying for a degree in Civil Engineering at
Basra University, graduating in 1996. The life as a Civil Engineer, though, was not Shawkat’s destiny and the point where his
affinity for letterforms would wait no longer quickly came.
In recent years, Shawkat has become known for a new calligraphic style, Al Wissam, which references a number of traditional
scripts including Sunbuli, Jali Diwani, Eastern Kufic, and Thuluth, bringing them together with modern design.
Wissam Shawkat is an award-winning designer and has worked nationally and internationally for some of the world’s best-
known branding, advertising and creative agencies.
As a revered calligraphic artist, Shawkat has been the subject of a number of high-profile solo exhibitions including Monumental
Forms at the Islamic Art Festival, Sharjah Art Museum (2016), Monumental 11/11 at Tashkeel Gallery, Dubai (2015) and
Letters of Love at Reedspace Art Gallery, New York (2011).
His numerous awards and accolades include Baghdad’s 4th International Calligraphy Festival in 1998, his first international
prize, 5 times winner of Al Burda International Calligraphy Competition, Al-Baraka Turk Bank Calligraphy Competition, Visual
& Audible Arabic Calligraphy, Iraqi Calligraphy Society Prize, International Calligraphy Competition (IRCICA), and Dar Al-
Salam 3rd Arabic & Islamic Ornamentation Festival.
Wissam Shawkat is based in Dubai and engaged as a full-time artist and designer. His work features in collections including
that of the Sharjah Royal Family, The Dubai Royal Family, and the Abu Dhabi Royal Family, as well as private and museum
collections around the world.
Instagram handle: @wissamshawkat
Sameena Ahmad Sudarshan Malpani T.M Lakshmanan Zahra Husain
Managing Director Managing Director Senior Executive Officer Executive Manager
sameena.ahmad@alpencapital. sudarshan.m@alpenadvisors. lakshmanan.tm@alpenadvisors. [email protected]

com com com
+971 (0) 4 363 4345 +971 (0) 4 363 4396 +971 (0) 4 363 4306 +971 (0) 4 363 4321
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I S L A M I C F I N A N C E &

His Excellency Sami Al Qamzi,

Wallahu Waliuu Al-Tawfiq

2. ISLAMIC FINANCE INDUSTRY ............................................................... 8

2.1 Islamic Banking .......................................................................................... 11

2.2 Sukuk ........................................................................................................ 23

2.3 Islamic Funds ............................................................................................. 33

2.4 Takaful ...................................................................................................... 38

2.5 Other Islamic Financial Institutions (OIFIs) ..................................................... 43

3. ISLAMIC WEALTH MANAGEMENT ........................................................ 46

4. ISLAMIC SOCIAL FINANCE .................................................................. 53

5. ISLAMIC ACQUISITION DEALS ............................................................ 57

6. DEMAND DRIVERS .............................................................................. 61

7. EMERGING THEMES ............................................................................. 65

8. INDUSTRY OUTLOOK ........................................................................... 73

1.1 Scope of the Report

1.2 Industry Overview

1.4 Industry Outlook

Global Islamic Assets

Exhibit 1: Islamic Financial Asset by Segments (US$ billion, 2014-2019)

Source: ICD-Refinitiv Islamic Finance Development Indicator

Exhibit 2: Distribution of Global Islamic Finance Assets (2019)

Size Share of Islamic No. of Institutions/

Islamic Banking 1,993 69% 526

Sukuk 538 19% 3,420

Other IFIs 153 5% 645

Islamic Funds 140 5% 1,749

Source: ICD-Refinitiv Islamic Finance Development Indicator

Global Top 10 Countries by Islamic Assets

Exhibit 3: Top Countries by Islamic Finance Assets (US$ billion, 2014-2019)

Iran 345 434 545 578 575 698 15.1%

Saudi Arabia 413 447 473 509 541 629 8.8%

Malaysia 415 414 406 491 521 570 6.5%

UAE 161 187 203 222 238 234 7.7%

Qatar 87 101 68 129 125 144 10.7%

Kuwait 98 100 120 109 116 132 6.3%

Others 265 311 230 169 136 164 -9.1%

Total 1,975 2,201 2,307 2,461 2,513 2,875 7.8%

2.1 Islamic Banking

Islamic Banking Assets

Source: ICD-Refinitiv Islamic Finance Development Indicator

Competitive Landscape: Largest Islamic Banks by Asset Size

Exhibit 10: Largest Islamic Banks in GCC (US$ billion, 2020)

Bank Country Assets Deposits Net Loans

Al Rajhi Saudi Arabia 126.58 103.31 85.24

Dubai Islamic UAE 78.18 55.60 53.11

Kuwait Finance House Kuwait 70.74 50.39 35.36

Alinma Saudi Arabia 42.36 32.25 30.02

Abu Dhabi Islamic UAE 34.51 27.34 22.56

Al Baraka Banking Group Bahrain 28.25 7.51 2.85

AlJazira Saudi Arabia 24.86 18.36 14.57

Dukhan Bank (Barwa Bank) Qatar 23.30 1.98 15.80

Bank Boubyan Kuwait 21.18 16.80 15.87

Sharjah Islamic Bank UAE 14.47 9.07 2.11

Source: Company Financial Reports, Annual Reports

Consolidation in the GCC Islamic Banking Sector

Bank Country Assets Deposits Net Loans

Maybank Islamic Malaysia 60.80 39.37 48.51

AmBank Islamic Malaysia 40.30 26.91 25.24

CIMB Islamic Bank Malaysia 27.74 23.02 20.18