Report Overview

The Saudi Arabia Islamic finance market is flourishing because of the dominant Muslim population and their shift towards Shariah-compliant products along with favorable government initiatives such as Sukuk’s debt issuance program...

Saudi Arabia Islamic Finance Market- Industry Trends & Forecast Report 2028

Saudi Arabia Islamic finance market is forecast to grow from USD 945 billion in 2021 to USD 1,240 billion by 2028, exhibiting a CAGR of around 4% during the forecast period of 2022-2028. Saudi Arabia is the biggest market for Islamic finance. The dominant Muslim population and their shift towards Shariah-compliant products act as a major driving factor for the Islamic finance market. According to official statistics, 90% of Saudi citizens are Sunni Muslims while 10% are Shia. Furthermore, favorable government initiatives such as sukuk’s debt issuance program also significantly contributed to the growth of the Saudi Arabia Islamic finance market.

Islamic Finance - Overview

According to the definition by the Bank of Finance, “Islamic finance is a way to manage money that keeps within the moral principles of Islam.” Some of the most commonly used systems in Islamic finance are Mudarabah (profit-sharing and loss-bearing), Wadiah (safekeeping), Musharaka (joint venture), Murabahah (cost-plus), and Ijara (leasing). Islamic finance also prohibits certain practices under Sharia law including riba or usury (interest paid on all loans of money).

Saudi Arabia Islamic Finance Market Forecast and Trends

Growth Drivers

High Muslim Population Following Shariah Law

According to the Pew Research Center, the Kingdom of Saudi Arabia has more than 30 million citizens, among which 93% of them are Muslim, of which almost 90% of them are Sunni Muslims. The Muslim population in Saudi Arabia largely follows Sharia law. This acts as a major driving factor for the growth of Saudi Arabia Islamic finance law. The citizens focus towards carry out their business and financial activities in compliance with this Sharia law, which is fueling the overall market growth.

Favorable Government Initiatives And Regulations

In a report published in The National News, Ashraf Madani, a senior analyst at Moody’s Corporation, an American business, and financial services company, said that “A comprehensive set of Islamic finance regulations have spurred Saudi [Arabian] banks to issue Sukuk, Islamic products are now listed on the main market, and an Islamic mortgage refinancing business has been established”. These ‘Islamic finance regulations’ are significantly contributing to the growth of the overall market.

Restraints

Rigidity in Islamic Finance

Islamic finance works in compliance with Shariah law and therefore is rigid to a certain extent. For instance, there are limited to no efforts in the Islamic finance industry for the small traders and the lower-middle-income groups, their issues, and complications in dealing with inflation, late payments, the lack of hedging of currencies and rates, or sharia-compliant places to park short therm funds for liquidity. This acts as a major restraining factor for market growth.

Impact of COVID-19 on Saudi Arabia Islamic Finance Market

The Islamic finance market was negatively impacted by the unprecedented COVID-19 pandemic outbreak. The pandemic burdened the economic growth of Saudi Arabia. The demand for Sukuk registered a significant decline during this period, directly affecting the liquidity and stability of the Saudi Arabia Islamic finance market. However, the market is projected to gain traction in the post-lockdown period as the financial transactions surge amid the lockdown upliftment.

Saudi Arabia Islamic Finance Market - By Financial Sector

Based on the financial sector, the Saudi Arabia Islamic finance market is segmented into Islamic banking, Islamic insurance: Takaful, Islamic bonds 'Sukuk', Islamic funds, and other Islamic financial institutions (OIFI's). The Islamic banking segment accounts for the largest market share. This segment offers a wide range of services including Musharaka, Mudaraba, Murabaha, Musawama, Leasing, Salam, and Istisna, that are in compliance with Shariah law. Furthermore, limited risks involved in Islamic banking compared to conventional banking are also propelling the growth of the market.

Competitive Landscape

The leading market players of the Saudi Arabia Islamic finance market are Al-Rajhi Bank Saudi Arabia, Al Jazeera Bank, Al-Bilad Bank, Alinma Bank, SABB Islamic Financial Solutions, Dubai Islamic Bank, Samba's Islamic Banking Division 'IBD', and other prominent players.

The Saudi Arabia Islamic finance market is fragmented with the presence of many industry players. The market is also highly competitive and the banks and financial institutions often launch new products in compliance with Shariah Law to expand their consumer base. Furthermore, the adoption of competitive strategies such as partnerships, mergers, acquisitions, joint ventures, etc., is also prominent in this market.

Recent Development

• In February 2022, Dubai Islamic Bank has listed a USD 750 million Sukuk on the Middle East’s international financial exchange, Nasdaq Dubai.

Scope of the Report

By Financial Sector

• Islamic Banking
• Islamic Insurance: Takaful
• Islamic Bonds 'Sukuk'
• Islamic Funds
• Other Islamic Financial Institution (OIFI's))