As Islamic banking spreads, service providers continue to develop new tools and products to meet the wide-ranging financial needs of the world’s Muslims.
Despite challenging global economic conditions, Islamic financial institutions (IFIs) recorded another good year in 2017, with asset growth for Islamic banks outpacing that of conventional banks, particularly in the key regions of the Middle East and Asia. In the Middle East financial and banking sector, IFIs achieved balance-sheet growth of 6%, compared with 4% for conventional banks. The difference was even greater in Asia, especially in the larger markets of Indonesia and Malaysia. Profitability for IFIs remains very good, with institutions improving their asset and liability management, thus widening their margins, reducing impairment costs and capitalizing on wider fee income.
Maybank Islamic, our pick for the World’s Best Islamic Financial Institution this year, is ramping up its global presence, product development and innovation, and is a center of excellence for Islamic finance. These are important aims for all IFIs as they become more mainstream financial intermediaries in many global markets. Indeed, the larger Islamic banks are focusing on growth and expansion outside their domestic markets, to regions including Asia, the Middle East and Africa.
IFIs are also becoming more involved in big-ticket financing through the increased use and design of medium-and longer-term funding solutions, such as sukuk—and, through this, increased involvement with sovereigns and corporates. Additionally, IFIs are focusing on market segmentation, offering new products and services in the high-net-worth segment through fund launches, private banking and asset management.
Africa is a key emerging region for IFIs. In Morocco, a couple of banks were granted licenses in 2017 to open Islamic banks, and assets are set to expand rapidly once they are established. This is also likely to be the case for sub-Saharan banking markets.
In the key sukuk (bond) market, long a bellwether for the shariah financing market, 2017 was a bumper year. Sukuk issuance was up by a substantial 45% in 2017 to $98 billion. This was driven by large issues launched by Gulf Cooperation Council (GCC) states, particularly the $9 billion issue by Saudi Arabia. Standardization remains an issue for sukuk, but some progress was made last year.
The winners of the Global Finance Best Islamic Financial Institutions are selected by the editors of Global Finance magazine based on entries submitted by applicants as well as independent research. Global Finance scores each entity on each separate criterion, then applies an algorithm to arrive at a numerical score, with 100 equivalent to perfection. The proprietary algorithm includes criteria—such as knowledge of local conditions and corporate customer needs, financial strength and safety, market standing, compliance with shariah law and international regulations, customer service—weighted for relative importance. When more than one institution earns the same score, we favor local providers over global institutions, and privately owned banks over government-owned ones. It is not necessary to enter in order to win, but past experience shows that entrants are able to present details and insights about the institution that may not be otherwise available to the editors.
The winners are Islamic financial service providers that best meet the specialized needs of Muslim-run corporations as they engage in global commerce. These top-notch financial institutions are not always the biggest, but rather the best—those with qualities that Islamic companies should look for when choosing a provider.