Islamic Finance Projected to Reach $7.5 Trillion by 2028, Attracting Non-Muslim Markets
Islamic finance is experiencing significant growth, with its assets expected to surge by 36% to $7.5 trillion by 2028, according to Standard Chartered Plc. This growth is not only driven by the increasing young and Muslim populations in countries like Indonesia, Pakistan, Egypt, and across Sub-Saharan Africa, but also by a rising interest from non-Muslim markets seeking transparency and ethical investments. These markets are drawn to Islamic finance’s principles of avoiding harmful or unethical industries.
In a May report, Standard Chartered noted that government support for Islamic banking is also a key factor. Khurram Hilal, CEO of Standard Chartered Saadiq, highlighted that “Islamic neobanks, crowdfunding, and blockchain platforms are enabling ease of accessibility and convenience amongst youth and the unbanked populations.” He added that established Islamic finance hubs like Malaysia and emerging markets such as Brunei, Indonesia, Singapore, and Hong Kong are spearheading innovation in Islamic financial products in Asia.
The global Islamic finance industry’s assets grew by 12% in 2024 to $5 trillion from the previous year, based on data from the London Stock Exchange Group.
While both Islamic finance and ESG (environmental, social, and governance) finance promote environmental protection, equality, social justice, and economic prosperity, Islamic banking has stricter limitations. For instance, it prohibits interest and investments in certain industries like alcohol, and all transactions must be backed by tangible assets, as outlined in a PricewaterhouseCoopers report.
Many countries, including those outside the Organisation of Islamic Cooperation, have integrated Islamic finance into their national financial strategies over the past four years. Hilal pointed out that central banks in nations such as the United Arab Emirates, Bahrain, Pakistan, and Malaysia have established dedicated Islamic finance frameworks and governance regulations.
However, challenges persist, including complex and often conflicting regulations across different regions. Hilal also noted that “tariffs and trade disputes can lead to market volatility, affecting the performance and attractiveness of Islamic finance products.”
To further boost Islamic banking’s appeal, Hilal stressed the need for more Sharia-compliant capital markets and incentives for companies issuing sukuk (Islamic bonds). He also mentioned that enforcing Islamic finance regulations can be disruptive due to the “intricate interplay between religious principles, legal systems and market practice.” A proposed shift from asset-based to asset-backed transactions could also lead to inconsistent implementation across different jurisdictions. In an asset-based bond, the investor owns the bond but the issuer controls the asset, whereas in an asset-backed Islamic bond, investors truly own the underlying asset, which is legally transferred to a special purpose vehicle.
Beyond regulatory complexities, Islamic finance faces hurdles like the lack of a unified global standard and varying interpretations of Sharia principles, leading to inconsistent product offerings. Hilal emphasized the need for more tech-based infrastructure and funding for Islamic fintech innovation.
Despite growing interest, awareness of Islamic banking remains low, along with the misconception that it’s exclusively for Muslims. Hilal concluded that the industry needs more support in integrating Islamic banking education into mainstream curricula and professional certifications like CFA and CPA.
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