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According to EY’s “Banking in emerging markets” report, the assets of global participation banking (also known as Islamic banking) reached $924 billion in 2015, with growth rates declining across all regions compared to previous years.
The GCC region’s share of participation banking increased to 72 percent, as the size of assets in the Association of Southeast Asian Nations (ASEAN) countries declined during 2015.
Saudi Arabia, the UAE and Malaysia are the three largest participation banking markets in terms of assets representing 34.2 percent, 17.2 percent, 13.3 percent of the global market share respectively.
EY’s MENA Financial Services Leader Gordon Bennie says: “Today more than two billion adults still do not have a bank account. There are also more than 200 million micro, small and medium size businesses with unmet financing needs. The demand for a responsible, Shariah-compliant financial system is huge. There is also a wealth of business opportunities offered by FinTech innovations for participation banks, particularly in emerging markets.”
EY’s Global Islamic Banking Center Partner Ashar Nazim says: “The fact that almost one-third of the $3 trillion global Shariah-compliant assets are either reported as informal or best estimates demonstrates the limitation of participation banks in making sound strategic decisions.”
SME and peer-to-peer lending platforms, payment related innovations such as person-to-person payments, digital authentication and digital wealth management are some of the key areas of FinTech innovations that are relevant for participation banks.
If banks were to consolidate with Fintech companies, it could propel participation banks to become mainstream across 20 promising markets by 2021, up from five markets today, representing a jump from 100 million customers to 250 million customers over the same period.
The millennial generation has a clear preference for conducting their financial services on an end-to-end digital platform.
Digital-only banking could become a significant client segment for participation banks.
© Arab News 2016
