Islamic banking gains prominence in the UAE

Dubai: Islamic banking is gaining traction in the UAE in terms of progress, penetration and perception according to the latest Islamic Banking Index from Emirates Islamic.

“Despite the current pandemic situation that has affected Islamic and conventional finance markets in the short-term, we expect strong growth in the Islamic finance market to continue to increase,” said Wasim Saifi, Deputy CEO-Consumer Banking and Wealth Management at Emirates Islamic.

The share of Islamic banks’ assets to total assets in the UAE has increased from 17.3 per cent in 2013 to 18.8 per cent as at June.

Popularity

As a fallout of 2020’s global economic downturn due to the pandemic, this year’s edition of the Index demonstrates a small reduction in the overall penetration of both conventional and Islamic products compared with 2019. The overall penetration of conventional and Islamic banking dropped from 60 per cent last year to 58 per cent for Islamic banking products and from 65 per cent to 64 per cent for conventional banking.

The penetration of Islamic banking products has increased gradually from 47 per cent to 58 per cent since 2015, while conventional banking products have seen a reduction from 70 per cent to 64 per cent. The overall penetration of Islamic finance products among Muslim respondents was consisten - at 70 per cent in 2019 and 69 per cent in 2020.

Three out of five respondents in the UAE now have at least one Sharia compliant product – 60 per cent - up from 55 per cent in 2018. Post-pandemic market recovery and the growth in sectors such as halal food, halal treatments and cosmetics, and modest fashion should continue to create demand.

UAE’s support

The UAE is working on initiatives to support the growth of Islamic finance. The UAE Ministry of Finance announced plans to create a “unified global legal and legislative framework” for the sector. 

DIFC has been investing heavily on fintech to spur growth of the Islamic finance industry. The FinTech Hive accelerator partners with specialist organisations that include the Dubai Islamic Economy Development Centre (DIEDC) and various Islamic banks.

DIEDC collaborated with DIFC, Dubai Financial Market, and Climate Bonds Initiative to grow the 'green sukuk' market. The agreement aims to promote the issuance of green sukuks, in addition to developing the standards for their certification along the lines of Climate Bonds' Standard and Certification Scheme.

Investor confidence

Investor interest in Islamic investment opportunities are on the rise and is demonstrated by the successful sukuks from Emirates Islamic and Dubai Islamic Bank and the oversubscriptions they generated.

“With the economy opening up and lockdown measures lifted, we continue to witness increased uptake on Islamic finance products, particularly on the retail segment,” said Saifi. 

“As an Islamic financial institution, it is now up to us to champion this new way of life, by embracing digital solutions and creating customer-centric ecosystems,” said Farad Al Mullah, Deputy Head of Consumer Banking and Wealth Management at Emirates Islamic.