The 5 reasons why the West should pay attention to Islamic finance will be highlighted by Musaffa in this short article. We hope that this article may contribute to attracting the attention of non-Muslim investors to know more and invest in Islamic finance products.
Islamic finance is one of the fastest emerging financial sectors. However, it still accounts for a small part of global finance. According to the Union of Arab Banks, ten countries accounted for 95% of global Shariah-compliant assets. The countries are Iran that represents 30% of the total international and is followed by Saudi Arabia that represents 24%. Furthermore, Malaysia contributes 11%, the United Arab Emirates is at 10%. The countries that are lower than 10% are Qatar (6%), Kuwait (5%), Bahrain (4%), Bangladesh (1.8%), and Indonesia (1.6%). The information is based on 2020 data.
These figures contribute to the overall development of Islamic finance. The following are the reasons why Islamic finance has become more important.
1- The Muslim population is rapidly growing.
The Muslim population worldwide reached 1.95 billion followers in 2020. It is constituting 25% of the world’s population. This figure represents an increase in the Muslim population compared to 2016. It is because, in 2016, the Muslim population only reached 1.8 billion people worldwide. If this massive number of people look for Shariah-compliant financial products, the demand for the Islamic financial industry will increase.
2- Muslim customers want and require products that comply with Shariah.
The Majority of people know that Muslims are not permitted to do Haram transactions. Those transactions are interest-bearing transactions, gambling, or the manufacturing of prohibited goods in Islam. As a result, Shariah’s teaching forbids Muslims from investing in conventional banks and investment products. This situation creates the need for Muslim investors for products that meet shariah requirements.
3- Islamic and conventional finance may coexist.
The establishment of Islamic finance must follow Shariah’s teachings. However, the structure of this system does not threaten the Western world and the conventional financial system. Thus, Islamic finance will always coexist with conventional finance now and in the future. In practice, conventional finance will always recognize the value of Islamic finance and contribute to its development.
4- The gulf is an oil-rich region (and cash).
Almost half of the world’s oil and gas stocks are located in the Gulf Cooperation Council (GCC) member countries including Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. These natural resources provide money for these countries. This situation creates an optimistic view of the Islamic finance industry. As a result, some of the world’s wealthiest countries and individuals look for Shariah-compliant investment products.
5- The awareness of non-Muslim investors
Since the financial crisis of 2008, investors have sought to minimize risk while still earning a profit. So, customers notice when solutions with the potential for enhanced portfolio diversity and risk reduction hit the market. Islamic investing products are different from conventional products. Shariah’s investments are based on business contracts that promote transparency and eliminate speculation. It also ensures that all contract parties understand what to expect and the associated risks.
Additionally, screening equities for shariah compliance requires a detailed examination of companies’ financial ratios. The emergence of this requirement is to avoid those with an excessive amount of debt. As a result of this situation, we hope that Islamic financial products will eventually attract a large number of non-Muslim investors seeking to invest in shariah-compliant investments.
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