Islamic finance is today a $3.9 trillion industry spread over more than 80 countries with the bulk of it concentrated in very few markets. Comparing data from different sources shows that just 10 countries account for almost 95% of the world’s sharia compliant assets. Saudi Arabia and Iran lead the way with 25% to 30% market share each, followed by Malaysia (12%), the UAE (10%), Kuwait and Qatar (5.5%), Türkiye and Bahrain (3.5%), Indonesia and Pakistan (2%).

These countries drive the growth of Islamic finance, set industry standards and foster innovation. Over the past decade, Islamic finance grew at an exponential yearly pace of around 10%. According to the 2023 State of Global Islamic Economy report, total sharia-compliant assets will grow to $5.95 trillion by 2026 although that depends on the economic well-being of these 10 markets.

Islamic finance’s primary sphere of influence is of course the Arab world thanks to its Muslim-majority populations and abundance of petrodollars. The Middle East and North Africa (MENA, which excludes Iran) are home to over 190 Islamic banks.

The share of Islamic banking from total banking assets varies among Arab countries, with Sudan recording the highest share at 100%, followed by Saudi Arabia at 74.9%, Kuwait at 51%, Qatar at 28.6%, Djibouti at 25.0%, the UAE at 22.7%, Jordan at 17.8%, Palestine at 17.4%, Oman at 16.6%, and Bahrain at 16.1%.

The Gulf Cooperation Council (GCC) dominates the world of Islamic finance with over 97% of the top 50 Arab Islamic banks’ assets (see table below).

The region’s 15 largest Islamic banks are all GCC-based and accounted for nearly $770 billion assets in 2022. These banks sometimes branch out abroad—Bahrain’s Bank al Baraka for instance has offices in more than 15 countries. A milestone for the region was the finalization Kuwait Finance House’s acquisition of Bahrain’s Ahli United late 2022. The $8.8 billion created the second largest Islamic bank in the world with over $120 billion combined assets (see table below).

Up until recently, North African countries considered Islamic finance to be an unwelcome interference from Gulf states. Islamic banks and financial products were outlawed or strictly monitored.

Morocco allowed it last. In 2017, the regulator, Bank Al-Maghrib, allowed five Islamic banks to start operating in the kingdom. The country also issued its first Islamic bond or sukuk in 2018. By 2022, “participatory finance” as it is called there was worth $2.7 billion. Sharia-compliant lenders represented only 2% of the local banking market but their assets grew 20% year over year, a much higher growth rate than that of conventional banks.

That same year, Islamic lenders had a 5.1% market share in Tunisia and 2.4% in Algeria where Islamic banks already existed. Governments are currently working on legal frameworks to introduce sukuks and pushing for conventional banks to develop and commercialize sharia-compliant products.

Egypt, North Africa’s biggest market issued its first Islamic bond in 2023. Sharia-compliant finance grew 22% between 2022 and 2023 and represents about 4% of the local banking sector according to the Egyptian Islamic Finance Association.

If MENA represents Islamic finance’s past, the Asia-Pacific region—where the majority of the world’s more than 1 billion Muslims live—may represent its future.

Today, the Asian-Pacific region represents almost 25% of the global Islamic finance market. In Malaysia, sharia-compliant institutions account for close to one-quarter of the financial sector. Kuala Lumpur is one of the main drivers of the global sukuk market and weighs in on international compliance with the Islamic Financial Services Board, one of the world’s two major Islamic finance regulatory bodies.

Other mature Asian Islamic finance markets include Bangladesh, Brunei and Pakistan where sharia-compliant assets make up more than 15% of total bank assets.

Surprisingly, Islamic finance is still in its infancy in Indonesia even though its population is 90% Muslim. In 2023, sharia-compliant lenders accounted for only about 8% market share. In recent years, the authorities began to see the potential of Islamic finance and developed a roadmap to develop the sector with the help of Malaysian expertise that led to the consolidation of three entities to create of Bank Syariah, one of world’s ten biggest Islamic lenders. The country is also a pioneer for green Islamic bonds.

The nature of the African market—huge territories, little financial education, lack of regulatory frameworks—makes it challenging for Islamic banks to establish a presence in most Sub–Saharan countries. If sharia-complaint finance is to develop on the African continent, chances are will be led by banks from Egypt, Sudan and Morocco.

At this stage, Islamic finance in Africa tends to spread through private or sovereign bonds rather than brick-and-mortar banking. African governments see Islamic finance as a tool to raise development funds on international markets and diversify their pool of investors but so far, the results have been limited.

“We expect the top three sukuk issuers in Africa—South Africa, Egypt, and Nigeria—will continue to play a role in Islamic finance. Rated African sovereigns’ sukuk issuance amounts to almost $4.3 billion and has accounted for more than two-thirds of Africa’s total issuance of $6.6 billion since 2014” reports S&P in its 2024 assessment. However, “the complexities of sukuk and changes to sharia standards continue to intimidate African sovereign and slow adoption rates.”

In the aftermath of the 2008 crisis, Islamic finance appeared as a relatively safe alternative to the teetering Western banking system. Sukuks seemed like a good way to tap into new markets, Islamic funds represented opportunities to access large amounts of liquidity and Islamic banking was a way of monetizing local Muslim communities.

London positioned itself to become the hub for sharia-compliant finance in the Western world. Today, the UK boasts five licensed Islamic banks, over 20 conventional banks offering Islamic financial products.

Other European countries where Islamic finance made a remarkable start include:

France—which has the largest Muslim population in Europe—is also a promising market. Authorities (including France’s former minister of finance and IMF director Christine Lagarde) have pushed hard for the development of Islamic finance there, yet banks have largely failed to respond due to fears that being associated with Islam at a time when the country is targeted by terrorist attacks would damage their reputation. French investment banks however offer sharia-compliant products and services to cater to the needs of wealthy foreign clients. 

Russia has also started offering Islamic finance products through fintechs like Payzakat, or traditional banks. The idea is both to cater to its Muslim population and help its banks scale into MENA markets, like Sberbank the leading Russian lender who set up in Abu Dhabi in 2020.

Elsewhere in the world, some US banks have started offering sharia-compliant products but such offerings remain a very small niche. South America is the last continent where Islamic finance is taking root. Mexico is starting to think about it. In December 2017, Trustbank Amanah, the continent’s first Islamic bank, bank opened in Surinam.

In just a few decades, Islamic finance has established itself as a significant player in global finance. Today, with thousands of institutions around the world, this sector is no longer limited to the devout clientele of Muslim countries in the Middle East and Southeast Asia. It has successfully gained market share in Europe, Asia, Africa, and North America, where a diverse clientele is drawn to the Sharia-compliant principles of risk-sharing and social responsibility. As global investors increasingly prioritize sustainability and ethics, Islamic banking’s alignment with these values positions it as a key player in the burgeoning sustainable finance movement.

Islamic banking has also proven resilience in turbulent economic times. By prohibiting speculation and leveraging risk-sharing mechanisms, Islamic banks have demonstrated their ability to withstand crises, sometimes better than the conventional sector, a strength particularly relevant for investors in today’s uncertain economic climate. With a host of new financial innovations and robust regulatory backing, Islamic banking is poised for a bright future.

Islamic finance is a way of doing financial transactions and banking while respecting Islamic law or sharia. Islamic finance hardly existed 30 years ago yet today is a $3.96 trillion industry with over 1,650 specialized institutions located all around the world. Islamic banks are by far the biggest players in the Islamic finance industry and account for $2,7 trillion or 70% of total assets. According to a 2023 State of Global Islamic Economy report, total sharia-compliant assets are expected to grow to $5.95 trillion by 2026.

Islamic finance only represents about 1% of global financial assets but with a compound annual growth rate of 9%, it is expanding quicker than conventional finance. In some geographies like the Gulf Cooperation Council (GCC) or Sub-Saharan Africa, Islamic banks now compete directly with Western banks to attract Muslim clients.

So what is behind the success of Islamic finance? What makes Islamic finance special? Why is it growing rapidly?

All Islamic finance investments, acquisitions, and transactions must reflect Islamic values. Dealing with anything illicit (haram) like alcohol production, pork breeding, arms manufacturing, or gambling is strictly forbidden. It is interesting to note that similar initiatives exist in other faiths—the STOXX Index for example only selects companies that respect Christian values.

This ethically-driven approach to business partly explains the success of Islamic banks at a time when many customers lack trust in the financial system. Moreover, sharia-compliant entities have proven themselves in times of crisis.

Because Islamic law holds that making money from money is wrong, sharia-compliant institutions tend to refrain from engaging in speculation. They traditionally avoid derivative instruments such as futures or options and prefer to have assets grounded in the real economy.

This substantially protected Islamic banks from the 2008 financial crisis. Unlike their conventional counterparts, sharia-compliant banks were not involved with toxic assets and resisted the shock better.

“Adherence to Shariah principles—which precluded Islamic banks from financing or investing in the kind of instruments that have adversely affected their conventional competitors—helped contain the impact of the crisis on Islamic banks”concluded a 2010 IMF report.

This is a major reason why Islamic finance now has a serious, stable and trustworthy image around the world.

Many of the products offered by Islamic financial institutions are comparable to Western or conventional finance even though interest and speculation are forbidden. Banks are by far the biggest players in Islamic finance—some of them are exclusively Islamic while others offer sharia-compliant products but remain mostly conventional.

Aside from the absence of interest rates, the key concept of Islamic finance is risk sharing between parties in all operations. Here are some of the key sharia-compliant products offered by banks—they have Arabic names but in most cases we can find an equivalent in conventional Western banking.

Mudarabah or profit share: An investment in which the bank provides 100% of the capital intended for the creation of a business. The bank owns the commercial entity and the customer provides management and labor. They then share the profits according to a pre-established ratio that is usually close to 50/50. If the business fails, the bank bears all the financial losses unless it is proven that it was the customer’s fault.

Musharakah or joint venture: An investment involving two or more partners in which each partner brings in capital and management in exchange for a proportional share of the profits.

Takaful or insurance: Sharia-compliant insurance companies offer products comparable to conventional insurance companies and functions like a mutual fund. Instead of paying premiums, participants pool money together and agree to redistribute it to members in need according to pre-established contracts. The common pool of money is run by a fund manager.

The fund can be run in different ways when it comes to the surplus distribution and the fund manager’s compensation.

There are three big models:

In some cases, the fund manager creates a waqf, or a charity fund.

Sukuk or bonds: Sharia-compliant bonds began to be issued in the 2000s and standardized by the AAOIF—a Bahrain-based institution that promotes sharia-compliant regulation since 2003. Today, over 20 countries use this instrument. Malaysia is the biggest issuer, followed by Saudi Arabia and issuers outside the Muslim world include the UK, Hong Kong, and Luxembourg.

Sukuk issuance took off in 2006 when issuance hit $20 billion. Apart from a drop in 2015–2016 volumes then grew steadily to reach an all-time high of $162 billion in 2019, up 25% from 2018. This record number was backed by strong appetite from Malaysia, Indonesia, Gulf Cooperation Council (GCC) countries and Turkey.

That was before COVID 19. According to credit ratings agency Standard & Poor (S&P), the volume of issuance should drop around $100 billion.

“The market was, in fact, poised for good performance in 2020 but the pandemic and lower oil prices changed the outlook. Amid tougher conditions, we also don’t see core Islamic finance countries using sukuk as a primary source of funding despite their higher financing needs,” says S&P in its 2020 report on Islamic Finance.

Other industry experts beg to differ. Refinitiv research says sukuk issuances will continue to grow and could reach $174 billion in 2020 backed by government funding requirements.

Like conventional bonds, sukuks are very appealing to governments for raising money to spend on development projects. Their main challenge remains standardisation; buyers tend to find it more difficult to assess risk than with regular bonds.

Islamic finance also exists in the form of investment funds.

For hundreds of years, there was no need for Islamic finance because there was simply no financial system to “Islamise.” Up until the second half of the 19th century, the vast majority of the Muslim population around the world was unbanked and the prohibition of interest was applied on transactions by tradition rather than by law or regulatory bodies.

During the colonial era, Western banks and financial institutions penetrated Muslim countries and imposed interest-based methods on the Islamic world. In the 1940s and 1950s, independence movements pushed for the revival of Islamic culture and religious scholars in countries such as India, Pakistan and Egypt started to condemn the use of interest by banks. They proposed to prohibit interest and replace it with Islamic risk-sharing. Localized Islamic finance experiments took place in the 1960s in Egypt and Malaysia.

In many ways, Islamic finance was born as a rebellion against colonialism and for self-determination. The idea was to provide an ethical alternative to the Western-dominated international financial system based on the Quran.

In the 1970s, Persian Gulf countries—which were both suddenly incredibly rich with petro-dollars and extremely conservative in religious belief—took Islamic finance beyond local experiments and created the Saudi Arabia-based Islamic Development Bank in 1975 followed by the Dubai Islamic Bank in 1979. Because the establishment of the first sharia-compliant institutions coincided with the rapid economic development of their home countries, a large share of Islamic investments went into the construction and real estate sectors.

Islamic finance expanded quickly, first in the Arab world and East Asian countries with significant Muslim populations before reaching the West and especially the UK in the early 2000s. In parallel to that expansion, two regulating bodies emerged—the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) in Algeria (now relocated to Bahrain) and the Islamic Financial Services Board (IFSB) in Malaysia.

Today, there are over 1,650 Islamic financial institutions spread all over the world and total sharia-compliant assets represent $3.9 trillion. Although Islamic finance is less than 1% of the global financial market, it is one of the fastest-growing segments, attracting at times non-Muslim customers. While consolidating their existing markets, sharia-compliant entities have started to branch out into new territories, notably Sub-Saharan Africa and Europe. In a world that increasingly worries about environmental, social and governance issues, some depositors and investors see Islamic finance as an ethical way of dealing with their money.

Islamic finance offers products and services that comply with Islamic law (sharia) but who decides what is and is not sharia-compliant and what mechanisms exist to enforce those judgments?

Each Islamic finance institution has a sharia supervisory board (SSB). The board is composed of at least three jurists. They are paid by the bank but act as independent consultants. Their role is both consultative and regulatory: They answer the staff’s questions, advise on charity contributions (zakat), verify operations and certify products.

SSBs decide what is allowed (halal) or forbidden (haram) based on the two main sources of Islamic law: the Quran and the Sunnah—or what the Prophet Muhammad reportedly said and did during his lifetime. Board decisions are taken by majority vote and binding on the bank.

SSB members are typically religious scholars who specialize in Islamic jurisprudence. In Western countries like the UK, they can also be non-Muslims experts who have studied such matters extensively.

Over the past 10 years, Islamic finance has rapidly expanded across the world and finding qualified people to sit on SSBs has become challenging. In the world of Islamic finance, reputation is key and sharia non-compliance can be fatal to a bank.

At there international level, there are two supervisory bodies for Islamic finance: the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) and the Malaysian Islamic Financial Services Board (IFSB).

These bodies collaborate with institutions such as the IMF or the World Bank to promote sharia compliance globally. The AAOIFI sets basic standards for the Islamic finance industry while the IFSB issues recommendations based on risk assessments.

In Bahrain and the United Arab Emirates, AAOIFI standards are mandatory but in most countries their standards and recommendations are not binding. If a bank doesn’t comply, there are no sanctions. It is up to each country’s government to enforce certain rules through their central banks who impose those rules on sharia boards.

In all countries—except Sudan and Iran—Islamic finance exists alongside conventional banking. For Islamic banks, this means navigating a dual regulatory framework: the country’s laws and regulations as well as sharia compliance.

Already one of the wealthiest regions in the world, the Gulf Cooperation Council states are solidifying their status as a hub for global fortunes. According to Boston Consulting Group, the region’s financial wealth is expected to grow by 4.7% annually by 2027, reaching $3.5 trillion, up from $2.8 trillion in 2022.

“While global growth overall is moderate, the GCC is one of the fastest-growing regions and stands at the forefront of global wealth accumulation,” says Abdulla Al-Sada, senior executive vice president of QNB Group Asset and Wealth Management, a unit of Qatar-based QNB Group, the MENA region’s biggest financial institution by assets and the first lender to have established private banking in the emirate. “We are working on an ongoing basis to further enhance and uplift our holistic wealth management offering for our sophisticated and demanding clientele.”

For private wealth managers, the region offers attractive opportunities. The GCC already hosts hundreds of private banks, asset management firms, and family offices, including global leaders like Edmond de Rothschild, Goldman Sachs, and BlackRock. Each month, new firms enter the market.

In December, Farro Capital established a presence in Dubai’s International Financial Center (DIFC). For Rajiv Garg, senior executive officer of the Singapore-based multi-family office, expanding into the Middle East was a “no-brainer,” as “the region’s family office market is projected to exceed $1 trillion by 2026” and offers “a perfect blend of traditional wealth as well as newly minted billionaires and unicorn founders.”

In the past, local entrepreneurs and families typically sent their money to private banks in Switzerland or Luxembourg for safekeeping. According to a recent report by Strategy&, the global strategy consulting arm of PwC, over 70% of the region’s private wealth is currently held in offshore accounts. But today, GCC clients have a new priority: passing wealth to the next generation.

“In recent years, we’ve see a paradigm shift with the increasing importance of generational wealth transfer, tech entrepreneurs and family offices, especially in the United Arab Emirates and Saudi Arabia,” says Antoine Chemali, CEO of BNP Paribas Wealth Management Middle East, who has been working with the region’s families since the 1970s. 

By 2030, an estimated $1 trillion of assets is expected to change hands in the Middle East. Local legislation has evolved to facilitate this process. For many GCC families, which have amassed vast fortunes primarily from oil and gas over less than a century, this will be the first major generational wealth transfer. For asset managers, it is a chance to offer custom-made services.

“We see ourselves as an extension of these families, where we act as their de facto family office with full-service offerings,” says Garg. The goal is to redefine the way families manage their wealth, enter their trusted inner circle, and “guide them in preserving and compounding their assets for generations to come.”

Industry experts anticipate that the new generation will bring a different set of goals to the task than their forebears.

“They will expect innovative financial solutions, digital instruments, sustainable wealth management solutions, and diversified investment products across asset classes globally,” says Sana Al-Hadlaq, senior executive director of Wealth Management at Kuwait’s Kamco Invest, one of the largest asset managers in the region with over $16 billion assets under management. “They expect their wealth managers and institutions to provide them with global reach and access across different markets and asset classes. Investments should comprise all asset classes, including alternative investments with superior returns along the dimensions of private equity, venture capital, and real estate,” says QNB’s Al-Sada.

While reaching across the planet, these younger clients will also be keeping much more money at home.

“International investment remains attractive, but there is a growing trend of these clients retaining a more significant portion of their assets in the region,” says Michel Longhini, group head of Global Private Banking at First Abu Dhabi Bank, the UAE’s largest bank. “This trend has been one of the key drivers of growth and diversification of private wealth management in the UAE and the GCC countries as governments have introduced more robust regulatory frameworks and initiatives to encourage the establishment of local investment companies.”

PwC forecasts the regional wealth management industry growing faster than the global average, reaching $500 billion in onshore assets by 2026, up from $400 billion in 2022, creating significant opportunities for local players to step up their game.

Besides fortunate heirs, the GCC has also become a destination for the globalized wealthy. According to the Henley Private Wealth Migration Report, the UAE has seen the largest influx of millionaires in the world since the pandemic, drawing 4,000 to 5,000 new residents annually from countries like India, the UK, Pakistan, Nigeria, and China. These migrants seek a safe haven to park their fortunes but also new business opportunities and a luxurious lifestyle, according to Vipul Kapur, head of Private Banking at Mashreq, one of the UAE’s largest private banks.

To attract new high-profile residents, GCC governments have adapted their conservative legal systems, introducing reforms to labor laws, residency programs, golden visas, and new ownership rules for property and businesses.

“The UAE and other GCC countries have implemented regulatory reforms to build a more robust financial environment, draw investment, and unlock their dynamic economies,” says Longhini. In 2023, FAB Private banking reported 14% year-on-year revenue growth and a 22% increase in assets under management, thanks mainly to new client acquisition.

New money is expected to keep flowing into the GCC this year. The UAE’s removal earlier this year from the Financial Action Task Force’s “grey list” of countries working to address deficiencies in their regimes for countering money-laundering and terrorist financing promises to further boost investor confidence. In Saudi Arabia, a policy requiring foreign companies to establish regional headquarters in the kingdom to do business with the government is likely to attract new fortunes eager to tap into the MENA region’s largest market.

Private wealth and asset management has traditionally been dominated by international financial institutions, but local ones are rising to the challenge, especially in regions where the new wealthy are proliferating. For some, this means forming partnerships.

“We have built strategic alliances with international partners,” says Al-Hadlaq. “We complement the value offered by Western financial institutions by providing them access to the best opportunities and services here.”

Other local managers prefer to compete for the best products and services.

“We need to differentiate through specialized services, customer experience, and innovative solutions,” says Mashreq’s Vipul Kapur. “This means adapting to new technologies, managing security risks and meeting customer expectations for seamless digital experiences.” 

Competition fierce in digital products and fintech, where AI is expected to open new horizons.

“This will challenge us to rethink the way we do business and operate,” says QNB’s Al-Sada. “These technologies will transform the entire asset and wealth management industry from the front to the back office, with an emphasis on personalization and increases in productivity.”

With both local fortunes and international client bases growing, the outlook for GCC asset managers that can seize the opportunity is positive. New technologies may even help them catch up with global industry leaders more quickly than anticipated. As regulatory environments continue to evolve, the region is looking forward to a surge in financial innovation, including blockchain technologies and green finance initiatives, further solidifying its role in the global financial ecosystem.

As they grow in sophistication, GCC asset managers are also increasingly looking to take their homegrown expertise beyond their borders and expand into new markets across Africa and Asia, where they aim to tap into emerging nodes of high-net-worth individuals.

Amid a global landscape characterized by sluggish growth, soaring interest rates, and inflationary pressures, the six Gulf Cooperation Council states stand out for their resilience. Growth across Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Oman, and Bahrain is expected to reach 3.7% this year, soundly outpacing the 2.9% global average, according to consulting firm PwC.

Western lenders and financial institutions are responding by strengthening their presence in the GCC as they scale back elsewhere.

“The GCC has increasingly become an attractive region for banks and investors,” says Antoine Chemali, CEO of BNP Paribas Wealth Management Middle East, which has over 600 employees in the UAE, Saudi Arabia, Bahrain, and Qatar. “The rise of the financial sector in the region creates demand on not only individual needs but also corporate banking and financial solutions.”

With most markets in the region outperforming their global peers, Rola Abu Manneh, CEO of Standard Chartered UAE, Middle East and Pakistan, says the GCC is contributing significantly to her bank’s strategic expansion strategy and its operating income growth.

“We are strategically targeting all markets across the GCC, tailoring our approach to each to leverage our strengths and meet the unique financial needs of our clients,” she says. “[Our] primary focus is on markets such as Saudi Arabia, the UAE, and Qatar, which lead the region’s economic diversification, with abundant opportunities in infrastructure, tourism, and the digital economy.”

Boasting a business-friendly environment and liberal policies, the UAE emerged as a financial hub two decades ago with the creation of the Dubai International Finance Center in 2004. Today, the free zone welcomes over 2,000 companies, including such international banks as HSBC, Royal Bank of Scotland, and JPMorgan Chase. In 2023, Dubai’s Financial Services Authorities registered 117 new firms, a 25% increase from 2022.

More recently, Dubai has become particularly attractive to asset managers and hedge funds, with applications from the latter group increasing 125% year-on-year. Newcomers include US-based Millennium Management and Wellington Management and Hong Kong-based WRISE Wealth Management.

Just an hour from Dubai, Abu Dhabi, the Emirati capital, has become the region’s latest magnet for international finance. Last year, 1,825 companies were registered with Abu Dhabi’s financial center, ADGM, up 32% from 2022. In recent months, Wall Street giants including Morgan Stanley and Goldman Sachs have set up shop alongside private wealth management firms, family offices, and fintechs eyeing investment opportunities as the region fine-tunes its transformation from an oil-rich desert to a global financial hub.

“I am excited about the opportunities,” says Oualid Lahsini, MENA CEO for Brevan Howard, one of the world’s largest hedge funds, which opened in Abu Dhabi’s free zone in 2023. “Engagement with Abu Dhabi and the broader GCC region is a key part of our long-term strategy. We are trading almost a third of our capital from the region.

The GCC economies’ growth over the last 50 years has created “an extraordinary stock of wealth for the public and private actors alike,” Lahsini notes. “Those actors are growing in sophistication and increasingly expect to be serviced locally.”

Saudi Arabia, the Arab world’s biggest market, is the next big thing on every banker’s mind.

The kingdom has revamped its financial sector as firms consolidated to create some of the region’s largest lenders and new legislation eases entry for foreign players. The authorities have adopted a carrot-and-stick approach; foreign firms are only allowed to sign deals with government entities—most deals, as it happens—on the condition that they establish regional headquarters in the kingdom. Effective this year, the rule appears to be working. Goldman Sachs received approval to establish itself in Riyadh in May; BlackRock, the Edmond de Rothschild Group, Deutsche Bank, and others are in the process.

Beyond its oil wealth, the GCC is boosting its attractiveness with a commitment to diversifying its economies. Each state has outlined its ambitions: Saudi Arabia, Qatar, and Bahrain with Vision 2030; Kuwait with Vision 2035; and the UAE with We the UAE 2031.

“The rise of the region is spearheaded by the UAE and Saudi Arabia,” says Chemali, both of which are attracting talent and capital with ambitious projects backed by strong support and investments from governments.

One facet of this drive is heavy investment in infrastructure projects. Notable examples include Neom, Saudi Arabia’s $500 billion futuristic city; Diriyah, Qiddiya, and Al-Ula, the kingdom’s tourism megaprojects; the UAE’s vast solar farms; Qatar’s North Field gas expansion, and the Gulf Railway, slated to connect all six GCC states.

“Financing infrastructure projects is key to creating jobs and opportunities across the region in the long run,” says Abu Manneh. “Encouragingly, GCC governments have adopted this long-term view, which has helped the pipeline of projects to remain strong.” International developers have also stayed engaged. Standard Chartered is among the international lenders providing diversified funding sources for projects including Neom and the North Field gas expansion.

While some critics argue these projects may be overly ambitious, substantial government backing makes them attractive to foreign investors.

“The region’s minimal funding requirements and significant inflows of foreign investment enhance its stability and allure for investors,” Abu Manneh notes.

In contrast to other parts of the world, the GCC’s transformation is powered for the most part by the Gulf states themselves through their large sovereign wealth funds. Often referred to as the “Oil Five,” Saudi Arabia’s Public Investment Fund; the Abu Dhabi Investment Authority, Mubadala Investment Company and ADQ in Abu Dhabi; and the Qatar Investment Authority are among the world’s largest and most active SWFs. The combined assets of the GCC’s 19 sovereign funds will reach $7.6 trillion by 2030, doubling from 2023 and the equivalent to the combined annual GDPs of the UK and Germany, according to industry tracker GlobalSWF’s 2024 annual report.

The GCC states are also leveraging deep financial-sector reforms to attract global investors. Many have introduced structural changes to their capital markets, leading to a surge in initial public offerings.

“The launch of innovative investment products, enhancements in post-trade infrastructure, and an increase in IPO activities have rendered the market more vibrant and approachable,” Abu Manneh says.

According to EY, the entire MENA region saw 48 IPOs in 2023, raising a total of $10.7 billion. The most significant market debut was ADES, the Saudi oil and gas drilling firm, which drew $1.2 billion, followed by Abu Dhabi’s Pure Health with $986 million. Saudi Aramco’s 2019 IPO remains the largest in history, raising $25.6 billion. Tens more companies are expected to list in 2024 and several GCC members are planning to privatize state assets; Oman, for one, aims to sell shares in at least 30 state-owned companies over the next five years.

Promisingly, financial-sector reforms have spurred investment across more sectors than just energy, including tourism, new technologies, and artificial intelligence, the latter of which the GCC economies aim to be at the forefront. Saudi Arabia plans to create a $40 billion fund to invest in AI, and in April, Microsoft committed $1.5 billion to G42 following the announcement of the Emirati AI firm’s partnership with OpenAI. This flurry of activity promises to add legs to the GCC states’ robust non-oil sector growth of 4.3% in 2023.

There is more work ahead on the financial front, Lahsini says. “Local capital markets are still very dominated by the equity story,” he says, “and I believe more can be done to develop fixed income and credit markets and to provide local actors with more options to fuel the growth.”

That said, the GCC states are solidifying their position as an attractive destination for foreign capital, while consistent government support and substantial financial resources are paving the way for a growing influx of international financial institutions.

Ahmed Alkharji: AUB converted its banking license and business model to an all-Islamic bank following the acquisition by Kuwait Finance House [KFH], a leading Shariah-compliant banking group, in October 2022. Given the growing acceptance and demand for Islamic banking, AUB’s conversion to an Islamic bank will open many avenues of growth and contribute to the further development of Islamic banking in Bahrain as well as in the wider region.

In Egypt, for example, where AUB has a long-lasting presence, being a Shariah-compliant lender allows us to seek significant growth opportunities. As of now, Islamic banking only accounts for 5% of the Egyptian banking market. Furthermore, in markets like Egypt and the UK, AUB has been a relatively smaller player among conventional banks but will be one of the larger players among Islamic banks, thereby providing us with better growth opportunities.

Overall, AUB’s conversion to Islamic banking is a significant milestone in the bank’s growth journey and is a testament to its commitment to providing a comprehensive range of Shariah-compliant banking products and services.

GF: What does that entail for clients?

Alkharji: With the conversion, there have been changes. Products and services offered to clients have been converted to meet Shariah compliance requirements. Our goal is to continue providing solutions to our existing client base while targeting new customers who are drawn to our innovative Islamic banking and investment offerings, both within our current geographical reach and beyond.

In the recent years, Islamic banking has undergone a remarkable evolution. Thanks notably to innovation, we now offer products and services which compete with those of conventional banks at a regional and international level. This has spurred an increased interest from a wider pool of retail, corporate, private and wealth management clients, whether they are Shariah-sensitive or not.

GF: Post-merger, you are now the second largest Shariah-compliant lender by assets globally. What markets you are interested in?

Alkharji: For us, the immediate priority is to convert our conventional banking subsidiaries in Egypt, the United Kingdom and Iraq to Islamic banks. In these jurisdictions, there is a significant potential for Islamic banking growth, and we hope to leverage it.

GF: What products and services will you focus on?

Alkharji: We believe that our customers look for convenience and simplicity. If we can provide that in addition to being Shariah-compliant, we will succeed in our mission. AUB Group currently offers comprehensive and improved Islamic banking products in sectors including corporate, retail, private investments, trade finance and financial markets. We will strive to ensure that the financial needs of all our target customers are met through services that are Shariah-compliant, be it for saving, investing, borrowing or transactional needs.

We are also very focused on introducing a wider range of innovative offers and digital solutions encompassing banking, financing, international trade, multiasset investments and private banking as well as wealth management solutions. Our aim here is to continually cater to our clients’ evolving needs and, at the same time, to enhance their banking experience.

GF: How do you see the future of Islamic finance?

Alkharji: The future of Islamic finance is promising. We believe it holds significant potential for growth and global recognition beyond traditional Islamic markets as demand for ethical and responsible financial practices continue to evolve, coupled with increasing efforts for cross-border collaboration, standardization and innovation.

The Islamic finance sector has witnessed strong growth, supported by increased banking assets and a fast-developing sukuk industry. As per rating agency Standard & Poor’s, global Islamic finance assets recorded 12.2% growth in 2021 and 9.4% in 2022, which helped it to cross the $3 trillion mark in 2022. In 2023-2024, S&P expects the sector to register a further 10% asset increase.

The growth of Shariah-compliant finance continues to be driven by factors such as greater standardization, new product development, increased sukuk issuance, a focus on sustainability-related themes by core Islamic finance players, the development of fintech platforms and apps, shariah-compliant wealth management products and the digitalization of financial services.

North Africa is the fastest-growing region in the Arab world and Africa. In 2023, the combined gross domestic product of Mauritania, Morocco, Algeria, Tunisia, Egypt and Libya increased by 4.2%, compared with only 1.6% for the Middle East and 3.2% for Africa. The International Monetary Fund (IMF) predicts that North African economies will outperform their peers again this year with 4% growth, but these numbers hide important regional disparities.

With a GDP of around $400 billion, Egypt is the biggest player. In 2023, Cairo maintained a 4.2% expansion and should remain above 3% this year—“remarkably resilient growth,” noted Mathias Cormann, secretary general of the Organisation for Economic Co-operation and Development (OECD), during the launch of its February survey regarding Eygpt.

But Cairo is also entrenched in a decade-long financial crisis. External debt has quadrupled in the past ten years, and 60% of the country’s budget is spent servicing that debt. The Egyptian pound is one of the world’s worst-performing currencies. Inflation hit a record high of nearly 40% last summer, and a third of Egyptians struggle with poverty.

Over the past few years, several international investors and local entrepreneurs stepped out of the market. But, as many observers point out, the Arab world’s most populous country might just be “too big to fail,” especially now with war raging in neighboring Gaza.

“Egypt, given its enhanced geostrategic role in the Middle East, is expected to continue benefiting from international support as it navigates exogenous external shocks, like declining trade volumes in the Suez Canal due to the conflict in the Red Sea,” says Reza Baqir, managing director and global practice leader for Sovereign Advisory Services at management consultancy Alvarez & Marsal.

In March, the EU announced an $8.1 aid package (a mix of concessional loans and investments) and the IMF increased its loan package to Egypt to $8 billion from $3 billion, providing liquidity that should help alleviate financial pressure—for a time, at least. A few weeks prior, Cairo signed a $35 billion deal with Emirati sovereign fund ADQ to develop Ras el Hekma, a small peninsula on the Mediterranean Sea that could attract as much as $150 billion in investments.

The recent announcements spark hope in business circles. “It changes everything,” says Mounir Nakhla, CEO and founder of MNT-Halan, Egypt’s first fintech unicorn, which raised $400 million in February 2023. “Many investors negotiating with us and dragging their feet are suddenly much more bullish about Egypt again.”

OECD’s Cormann highlighted several recommendations to help Egypt achieve “its massive potential,” including lowering administrative barriers to new businesses, decreasing the influence of state-owned enterprises and lowering trade tariffs.

“We are at a point where some are still skeptical. The numbers say that we’re getting out of the big problem, but valuations of companies and assets have not yet adjusted. It’s a great time to invest in Egypt,” adds Nakhla.

On the opposite side of the continent, Morocco is North Africa’s second economic heavyweight. Decades of fiscal and structural reforms have turned the kingdom into a powerhouse for foreign investment, attracting global firms to set up factories and regional headquarters for African and Middle Eastern operations. Despite challenges from the war in Ukraine and natural disasters at home, growth is expected to keep a strong 3% pace this year.

“Morocco seems to be positioned relatively well, given robust tourism receipts and a rebound in domestic demand coupled with declining inflation and expected domestic rate cuts,” says Alvarez & Marsal’s Baqir.

Some observers thought Tunisia could have played a role similar to Morocco a few years ago, but the country is now deep in a severe financial crisis. Accumulated public debt is equivalent to 80% of GDP, and to service this debt, Tunis relies heavily on loans from local banks, which squeezes its capacity to finance the economy. International ratings agencies have downgraded Tunisia several times, making borrowing harder. And the local authorities continue to reject IMF loan offers.

“We fear an imminent payment default on foreign debt,” says Nader Haddad, CEO of asset manager Finadhad. He predicts a further devaluation of the Tunisian dinar and rising poverty rates.

Tunisia will most likely need external assistance to see the light at the end of the tunnel, but structural reforms will also be required to boost attractivity.

“Tunisia is not welcoming to investors. The local administration is heavy, it’s not digitized, and bureaucracy kills the economy,” says Haddad, highlighting that given the right business environment, the country could present significant opportunities in areas such as industry, agriculture and research and development.

The other countries on Africa’s Northern coast tell a different story. Libya, Algeria and, to a certain extent, Mauritania are mainly rent economies. So while they can boast impressive growth rates like Libya’s 12.5% in 2023 and expected 7.5% this year, these figures are mainly a reflection of oil and gas—or, in Mauritania’s case, gold prices.

How do banks and financial institutions navigate this fragmented region? Over the past decade, most Western lenders—including Barclays, Scotiabank, BNP Paribas and Societe Generale—have gradually stepped out of North Africa, leaving local banks, mainly Moroccan and Egyptian lenders, to scale across countries and establish themselves as market leaders. National Bank of Egypt, Banque Misr and Attijariwafa now rank among the Middle East and Africa (MENA) region’s top 30 banks by assets, according to the latest S&P Global ranking.

At home and abroad, these banks share a common strength in knowing how to approach large unbanked populations to gain new customers. In Morocco, for example, the World Bank’s Global Findex survey shows that in 2021, 44% of adults had access to a bank account, and 30% used digital payments compared with only 29% and 17%, respectively, in 2017.

Most banks have developed their tech to accelerate financial inclusion or have partnered with fintechs, offering simple digital solutions for everyday transactions.

In Egypt, MNT-Halan serves more than seven million customers through services such as microfinance, salary advances, bill payments and digital wallets. Its monthly transaction volume is about $100 million, and its loan book is $550 million.

“We work closely with nearly every bank in Egypt. They supply us with money, and we distribute it. Although there is some overlap, the synergies are much stronger. We are mostly servicing segments they are not reaching or are underservicing, resulting in a very solid partnership,” explains MNT-Halan’s Nakhla.

Despite the severe crisis in Cairo, MNT-Halan “performed much better than expected,” continues Nakhla, indicating the firm’s loan book grew between $20 and $30 million month-over-month in 2023. “We’re very defensive as a company. Our core source of revenue is our loan book yield. In a very high inflationary environment due to the devaluation of the local currency, the average loan size automatically adjusts upwards, and so does the loan book in US dollars.”

Betting on the unbanked is a winning strategy in times of crisis, when some of the poorest drop bank accounts like in Tunisia, but also in more developed countries like GCC states where most of the population is composed of migrant workers who must send remittances.

In October, Morocco’s Cashplus raised $60 million—the MENA region’s fourth biggest fintech round in 2023—to continue transforming the company into a regional super app or one-stop-shop for financial services from a money transfer.

“In many emerging markets and even in some of the most developed countries, access to financial services is still hugely underpenetrated and not happening at its full potential,” says Nakhla, who plans to launch MNT-Halan in four new markets this year.

The other sector on every North African financier’s radar is climate finance. Last year alone, Morocco suffered a drought and an earthquake, Libya lost thousands of people to deadly floods and a dam failure in Derna, and Algeria grappled with wildfires.

Climate change “affects growth, employment and inflation, the main variables on which monetary-policy decisions are based. Besides, climate-related risks are bound to affect the banking and insurance industries and financial stability generally,” Morocco Central Bank Governor Abdelatif Jouahri warned during a recent conference in Rabat.

“The annual investment required to implement the region’s climate action plan by the National Determined Contributions (NDCs) is estimated to be $25.7 billion up to 2030. Nonetheless, the total climate action finance flows in North Africa amount to $5.9 billion, which is only 23% of the estimated annual requirement,” the African Development Bank group reported in its 2023 Outlook.

For now, foreign donors represent 80% of climate financing, and the local public sector 18%. That leaves opportunities to unlock private investment. Among the most attractive segments, new sun and wind energy-harvesting techniques have emerged as the most attractive. Agriculture—encompassing how to ensure food security amid rising temperatures, manage water resources, and reduce import bills—also presents important growth opportunities, as the sector is still formidable in terms of employment and as a share of GDP in all North African countries.

An essential part of the MENA region, North Africa has great potential thanks to its young population, natural resources and strategic location, but it needs to work on its attractiveness. To convince foreign investors to step in, the region needs reforms to ease business.

Global Finance: What do you expect for 2024 in the UAE market?

Raheel Ahmed: As of last year’s end, we had doubts about whether the UAE’s post-Covid growth would keep going, especially given the regional tensions and fluctuating US interest rates. But pleasantly, the UAE’s growth has continued. There are several reasons for this. First, they’ve done a brilliant job post-Covid in making it easy to do business and live there. This has made the UAE an appealing place to settle and work, drawing people in like a magnet. It is also seen as a haven for those affected by conflicts in nearby areas. Secondly, the tourism industry is booming, with a record number of visitors in 2023. And finally, the leadership’s smart financial strategies are paying off—they’re reducing reliance on oil revenue while benefiting from high oil prices. All these factors combined suggest that the UAE’s growth is here to stay in the short and long term.

GF: What sectors are you are focused on?

Ahmed: We’re a midsize bank with diverse investment services, catering from microfinance to corporate banking. Our focus sectors include education, spanning from early childhood to university level. We also prioritize hospitality, support SMEs [small and midsize enterprises] with a particular emphasis on empowering female entrepreneurs, engage in government projects, and specialize in trading and manufacturing. Microfinance holds significant importance for us, as it allows us to extend financial inclusion to the 4.5 million blue-collar workers in the UAE. Through our partnership with the French payment system Edenred, we facilitate the seamless processing of payroll, remittance and microlending services.

GF: Is artificial intelligence [AI] already a reality for you?

Ahmed: Machine learning and AI have been part of our toolkit. We leverage these technologies for various purposes, such as propensity modeling, fraud detection and identifying transaction patterns. Additionally, we’ve taken a proactive step by establishing a generative AI lab, positioning ourselves as early adopters in this field. We’ve prioritized tackling easily achievable goals, employing AI to enhance our tech development processes, complementing our coding and testing capabilities, and refining our internal policies.

GF: How is the advent of open banking in the GCC changing how you work?

Ahmed: Open banking is nearing its launch in the UAE, with advanced stages of development expected to culminate within the next 12 to 18 months. We’re closely collaborating with the central bank during consultation phases, followed by implementation, which may span a year or two. Achieving scale is crucial for these technologies, and I believe the UAE will serve as an excellent hub for broader adoption across the GCC and the Indian subcontinent. With a customer-centric approach, open banking holds promising use cases. As we embark on this journey in the UAE, we aim to be prepared to utilize and offer our APIs. Above all, prioritizing data security, privacy and trust is paramount in open finance. It’s imperative to ensure that entities accessing customer data uphold the same high standards of cybersecurity expected from a bank.

GF: How is your bank engaging with climate finance?

Ahmed: Our approach spans various levels, rooted in the belief that the societal impact touches everyone. Rather than merely making flashy announcements, we prioritize action starting from within. Our initial focus is on ingraining deep environmental, social and governance [ESG] goals within our company culture. This includes tangible reductions in water, electricity and paper consumption, aiming to make these initiatives meaningful for every employee.

Moving forward, we extend our efforts to our customers, offering green mortgages and green auto loans and collaborating with larger corporate clients on their transition to sustainable practices. This represents our second tier of engagement. At the highest level, we’re committed to significant climate finance initiatives, exemplified by our involvement in the UN COP28 summit. UAE banks pledged AED1 trillion [$270 billion] by 2030, with our contribution totaling AED8 billion [$2.1 billion]. However, our primary focus remains on making these commitments tangible and impactful for everyone involved daily.

For us, ESG encompasses not only environmental concerns but also social responsibility. To this end, we’ve developed the region’s first social finance framework and are set to launch a social finance bond. This initiative is particularly significant, as we are the largest financing provider to micro-SMEs and new startups in the country.