Cambridge Global Islamic Finance Report (Cambridge GIFR) is published by Cambridge Institute of Islamic Finance (Cambridge IIF) and produced by Cambridge IFA, a global think tank for the banking and finance industry based in the UK.
Cambridge GIFR has aptly claimed its status as a highly esteemed and referred report in the global Islamic financial services industry, with the successful publication of 12 consecutive annual reports. Today, it is the most respected brand and a standard-bearer in the realm of Islamic financial intelligence. Today, it is the most respected brand and a standard-bearer in the realm of Islamic financial intelligence.
Cambridge GIFR provides deep, comprehensive, up-to-date and all-encompassing analyses of the state of affairs of the global Islamic finance industry. It is also a means through which innovative ideas of leading thinkers and practitioners are disseminated to wider Islamic and conventional financial markets.
Cambridge GIFR’s initial focus is on the size, growth, and potential, of the Islamic finance industry, while putting forward possible policy measures to develop Islamic finance as a tool for global economic development and financial inclusion. Each year, the report revolves around a central theme that is in addition to the regular sections on analysis of industry segments, market trends and prospects of the global Islamic financial services industry.
The 13th edition of Cambridge GIFR carries the theme “Futurism in Islamic Banking and Finance – Vision 2050”. This theme was chosen to highlight and discuss the potential and challenges that the future holds for Islamic finance.
The past years have shown financial uncertainty globally. However, the growth of Islamic finance – financial activities which adhere to Shari’a or Islamic law has remained unscathed. Islamic financial assets touched the historical milestone of US$3.374 trillion at the end of 2020 and are projected to reach US$4.94 trillion by 2025. The estimated Islamic financial AUM as of December 31, 2020, was US$2.941 trillion, exhibiting an annual growth of 7.61%, which is also the highest annual increase in the last 5 years.
In recent years, Southeast Asia has emerged as the new continent of growth and it is anticipated that most of the growth over the next few decades will be in these emerging markets. The Islamic financial assets in the region reached US$754 billion in 2020, an increase from US$685 billion, the previous year. The region also ranks predominately for global sukuk issuance – this position is likely to be fortified in coming years as investors are increasingly seeking out investments embedded in ethical principles, and social and environmental responsibility.
Strong government support has been a key factor for the success of Islamic banking. Economies in ASEAN are relentlessly working to develop a comprehensive Islamic finance ecosystem, such as institutional incentives and creating supportive regulatory frameworks. At a time when SDGs and ESG concepts are gaining popularity among individuals and businesses in the financial sector, Islamic banking stands out as a values-based and ethical approach to financing. The industry is deep-rooted in Shari’a principles that include not investing in socially detrimental activities and certain industries, such as tobacco, alcohol and gambling.
Islamic finance has also been prompt in embracing green finance and green initiatives and products with ESG sukuk reaching US$15 billion in the third quarter of 2021. Notable ASEAN sukuk deals include Malaysia issuing the world’s first sovereign sustainability sukuk in US dollars last year.
Financial inclusion is positioned as a key enabler of the UN Sustainable Development Goals and Islamic finance is uniquely placed to help deliver financial services to traditionally underbanked communities and sectors. Islamic banking is not limited to people with non or limited access to conventional banking for religious or ethical reasons and by emphasising the buyer-seller relationship and the risk-sharing model between banks and customers it can reach the economically insecure sectors of society.
It is striking that given the potential and demand, the industry still does not progress at a pace of 40-50% per year or more. The future could see a downfall of this industry as institutional investors, banks and companies still prefer to use conventional finance, even in Muslim countries, while some important western institutions have backed out on the industry due to several reasons. Goldman Sachs abandoned its landmark sukuk launch worth US$2 billion in 2011 and HSBC restructured its subsidiary, Amanah, in 2012 by closing its Islamic banking operations in the UK, the UAE, Bahrain, Bangladesh, Singapore and Mauritius.
However, another look sees a way forward for Islamic finance and banking through FinTech and digitisation. Regulators around the globe are more open to the concept of financial technology, with a range of banking licenses issued for Islamic FinTechs.
The global Islamic FinTech market is predicted to grow in the near future, as a growing number of Muslims seek to avail Shari’a-compliant digital finance and banking services. According to an estimate, more than 250 Islamic FinTech companies are operating globally with a market size worth more than US $49 billion. Islamic finance today represents only 1% of conventional finance and the prospect that Shari’a-compliant products could entirely replace interest-based products is not very optimistic. However, there is always a light at the end of a tunnel.
