Want to be part owner of Musaffa? Our next crowdfunding round opens January 2025.
Reserve shares now

5 Reasons Why the West Should Pay Attention to Islamic Finance

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. As 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 allowed to engage in Haram transactions. Those transactions include interest-bearing transactions, gambling, or the manufacturing of prohibited goods in Islam. As a result, Shariah teachings forbid Muslims from investing in conventional banks and certain investment products. This situation creates the need among Muslim investors for products that meet shariah requirements.

3- Islamic and conventional finance may coexist.

The establishment of Islamic finance must follow Shariah teachings. However, the structure of this system does not threaten the Western world and the conventional financial system. Rather, it provides an alternative, ethical approach to finance that can coexist alongside conventional methods. In practice, conventional finance recognizes the value of Islamic finance and can play a role in its ongoing 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 been in the lookout for mitigating risk while still earning a profit. So, they can spot solutions with the potential for enhanced portfolio diversification and risk reduction. Islamic investing products differ from conventional products. Shariah’s investments are based on business contracts that promote transparency and eliminate speculation. It also ensures that all parties involved in a contract understand what to expect and the associated risks.

Additionally, screening equities for shariah compliance requires a detailed examination of companies’ financial ratios. Due to this requirement, companies with an excessive amount of debt are avoided. Given this context, we hope that Islamic financial products will eventually attract a large number of non-Muslim investors interested in Shariah-compliant investments.

To read more about Islamic Finance related topics, please click here and visit our academy.

Feel free to sign up for our free stock screening services at Musaffa.com