According to the Islamic Finance Development Indicator (IFDI) Report of 2022, the global Islamic finance industry, valued at an estimated $4 trillion, is projected to swell to $6 trillion by 2026. This burgeoning growth has fueled a race among cities worldwide to establish themselves as key hubs for Islamic finance, offering an assortment of Islamic financial products, stringent regulatory frameworks, and specialized expertise.
Islamic banking remains dominant, accounting for roughly 70% of the global Islamic finance assets in 2021, per the IFDI Report. Following in rank are sukuk, or shariah-compliant debt capital market instruments, which make up 18%, and Islamic funds, which constitute around 4%. Other Islamic financial institutions, inclusive of fintech, investment, financing, and leasing, microfinance firms, brokers, and traders comprised 4% of the global Islamic finance assets in 2021. Takaful, or Islamic insurance, had the least representation, about 2%.
Given the remarkable growth and impressive figures within the Islamic finance industry, various locations are vying to be recognized as global Islamic finance hubs. Among these, Dubai, Kuala Lumpur, London, Manama, and Riyadh have emerged as the most successful centers. Each of these hubs has a unique set of factors contributing to its success.
Dubai, in the United Arab Emirates, has positioned itself as a critical hub in the global Islamic finance industry, due to its strategic geographic location, robust Islamic finance framework, and reputation for innovation. The Dubai International Financial Centre (DIFC) has been pivotal in shaping Dubai’s role in the industry. Providing clear and transparent regulations, this framework has been instrumental in attracting foreign direct investment. Furthermore, Dubai has an active Islamic banking and capital markets scene, attracting a diverse range of borrowers.
Kuala Lumpur, Malaysia boasts a sophisticated Islamic finance ecosystem, characterized by market infrastructure, regulation, human capital, and product innovation. With $650bn in Islamic banking assets, it ranks third globally, behind Iran and Saudi Arabia. The country’s focus on regulation and supervision of Islamic finance institutions makes it a strong player in the industry.
London, United Kingdom, emerges as the leading hub for Islamic finance in Europe and the Western world. Thanks to its historical ties with key Islamic finance markets such as the UAE, robust regulatory environment, large and liquid stock exchange, and specialized services in shariah-compliant transactions, London continues to be a significant player in the sector.
Manama, Bahrain, once the Middle East’s regional financial hub before the establishment of the DIFC, now positions itself as a competitive alternative to Dubai. Bahrain offers a supportive regulatory environment and a developed Islamic finance ecosystem.
Riyadh, Saudi Arabia, is becoming increasingly important as a center for Islamic finance. Under Saudi Arabia’s Financial Sector Development Program, part of its Saudi Vision 2030 economic blueprint, authorities aim to position Riyadh as the global capital of Islamic finance by 2030.
Other cities such as Doha, Qatar; Jakarta, Indonesia; Istanbul, Turkey; and Islamabad, Pakistan are emerging as notable Islamic finance hubs. While these countries possess substantial Islamic banks or funds, their Islamic finance activity is mainly domestic, or their financial infrastructure is not as developed when compared with the aforementioned hubs.
The competition among these hubs will intensify given the benefits of being an Islamic finance hub, including increased levels of foreign direct investment. As the Islamic finance industry continues its upward trajectory, it remains to be seen which of these hubs will maintain their top positions.