The Rise of Shariah-Compliant Financial Services: Ethical Finance for a Changing World

Islamic finance has emerged as one of the fastest-growing sectors in global banking, offering ethical and Shariah-compliant alternatives to conventional financial services. With assets projected to reach $6.67 trillion by 2027, the expansion of Islamic finance has been particularly pronounced in the deposit and lending sectors, reflecting a growing preference for interest-free and risk-sharing financial models. According to the 世界银行 , Islamic finance has been expanding at an average annual growth rate of 10-12% over the past decade and has become a critical part of financial inclusion strategies in several countries (source: World Bank).

I should clarify from the outset: I am not an expert in Islamic banking. This article is based on my recent research and observations, not as an attempt to preach or advocate but to share insights. #Islamicfinance, like any financial system, has its nuances and complexities, and my goal is to highlight its potential while acknowledging its challenges.

Global Growth of Islamic Finance Gulf States: Leading the Charge

The Gulf Cooperation Council (GCC) states—Saudi Arabia, UAE, Qatar, Kuwait, Oman, and Bahrain—are at the forefront of Islamic banking expansion.

• Saudi Arabia has the world’s largest Islamic banking market, with Islamic banks holding 83% of total banking assets. Alrajhi bank is the largest Islamic bank globally, managing over $166 billion in assets.
• The UAE has positioned itself as a financial hub, with Islamic banking assets exceeding $256 billion. Dubai Islamic Bank remains a global leader in innovation within Shariah-compliant banking.
• Qatar Islamic Bank (QIB) and Kuwait Finance House are experiencing double-digit annual growth, showing a rising demand for Islamic financial services.

Southeast Asia: Innovation in Islamic Finance

Malaysia and Indonesia have successfully integrated fintech and regulatory support to drive Islamic finance adoption.

• Malaysia: Islamic banking assets now make up 40% of the total banking sector, with over $290 billion in Shariah-compliant assets. The country leads in Sukuk (Islamic bonds), holding over 60% of the global Sukuk market.
• Indonesia: With the largest Muslim population, Indonesia’s Islamic banking assets reached $83 billion in 2023, growing at 15% annually. Platforms like Ethis and microLEAP are pioneering Islamic fintech solutions.

Pakistan: A Transition to Full Islamic Banking

Pakistan is undergoing an ambitious shift towards 100% Islamic banking by 2027.

• Islamic banking assets in Pakistan have grown to PKR 9.2 trillion ($32 billion), accounting for 19.9% of the total banking sector.
• Deposits in Islamic banks have reached PKR 6.87 trillion ($24 billion), reflecting a 28.5% year-on-year growth.
• Meezan Bank Limited , Pakistan’s largest Islamic bank, has outperformed many conventional banks, reporting a 50% increase in annual profits.
• Raqami Islamic Digital Bank has secured its Islamic Digital Bank license from the State Bank of Pakistan (SBP), joining the ranks of other institutions making strides in this sector. Two of the remaining four digital banking applicants have also transitioned towards obtaining Islamic banking licenses. HugoBank , recognizing the growing demand for Shariah-compliant financial services, is pursuing a similar path. Drawing from its experience in Singapore, where it serves the island nation's 14% Muslim population through its sister fintech Hugosave , HugoBank aims to integrate these insights to cater to Pakistan’s evolving Islamic banking landscape especially for SMEs

Western Interest in Islamic Finance

Islamic finance is attracting non-Muslim investors who seek ethical banking options.

• The UK government has issued multiple Sukuk bonds, with the most recent issuance in 2021 raising ￡500 million to attract Shariah-compliant investments. The total value of Sukuk issued by the UK now exceeds ￡1.5 billion.
• In North America, fintech startups like Guidance Residential , which has funded over $9 billion in halal home financing, and Manzil , which has facilitated over $100 millionin Shariah-compliant mortgages, are providing growing alternatives for Muslim homebuyers.

Islamic Asset Management & Fintech Innovations

Beyond banking, Islamic asset management and fintech solutions are playing a pivotal role in expanding Shariah-compliant investment options globally. Islamic fintech startups are bridging gaps in accessibility, transparency, and efficiency, making Shariah-compliant financial services more inclusive. Here are a few honorable mentions:

WAHED INVEST (WAHED TECHNOLOGIES SDN BHD) (USA, UK, MENA): A digital halal investment platform offering Shariah-compliant portfolios, including Sukuk, halal stocks, and gold.

Sidra Capital (Saudi Arabia): A Shariah-compliant asset management firm specializing in private equity, real estate investments, and structured Islamic financial solutions.

RHB Islamic International Asset Management Berhad (Malaysia): Provides a range of Islamic investment products, including Shariah-compliant mutual funds and Sukuk funds for institutional and retail investors.

Alif Bank (Tajikistan) & @Alif Retail (Pakistan): A fully digital Islamic bank providing interest-free banking services, Shariah-compliant credit, and SME financing solutions. Alif retail is a shariah compliant BNPL solution that’s starting to make waves in Pakistan.

Ethis (Malaysia & Indonesia): A pioneering halal crowdfunding platform that enables individuals to invest in real estate and impact-driven projects.

microLEAP (Malaysia): A peer-to-peer (P2P) financing platform offering Shariah-compliant microfinancing to SMEs.

Funduq (UAE): A blockchain-based Islamic fintech platform that enables halal trade finance and supply chain solutions.

Types of Islamic Financial Services

Islamic finance operates under strict Shariah principles that promote risk-sharing, transparency, and ethical investments. The key financial services include:

1. Murabaha (Cost-Plus Financing)

A bank purchases an asset and sells it to a client at a declared profit margin, paid in installments.

Example: A company needs $50,000 worth of equipment. Instead of taking a conventional loan, the Islamic bank buys the equipment and sells it to the company for $55,000, payable over two years in fixed installments.

2. Mudarabah (Profit-Sharing Partnership)

One party provides capital while the other manages the business, and profits are shared according to a pre-agreed ratio.

Example: An investor provides $100,000 to a halal restaurant. Profits are shared 60-40, with the investor receiving $60,000 from a $100,000 annual profit.

3. Musharakah (Joint Venture Financing)

All partners contribute capital and share profits and losses in proportion to their investment.

Example: Two entrepreneurs co-invest in a $1 million real estate project, contributing $600,000 and $400,000, and share profits proportionally.

4. Ijarah (Islamic Leasing)

Assets are leased to a client for a fixed rental fee instead of selling them outright.

Example: A bank buys a house and leases it to a family for 15 years with monthly rent, after which the family gains ownership.

5. Sukuk (Islamic Bonds)

Sukuk represent ownership in a tangible asset, generating returns through profit-sharing rather than interest.

Example: The UK government issued $500 million in Sukuk to fund infrastructure projects, offering investors a share in revenues.

Substance Over Form in Islamic Finance

One of the most frequent critiques of Islamic finance is whether it truly eliminates interest-based elements or merely repackages them under different names. While Islamic banks follow Shariah-compliant structures, many functionally resemble conventional banks, raising debates over whether the industry prioritizes substance over form.

For instance, Murabaha-based home financing still involves a profit margin akin to interest in conventional mortgages, leading critics to question its authenticity. That being said, Islamic banking continues to evolve, with growing efforts to enhance transparency and risk-sharing.

Islamic finance is no longer a niche industry—it’s a mainstream financial system reshaping banking and .

With Pakistan’s push towards full Islamic banking by 2027, the conversation around Shariah-compliant finance is more relevant than ever. Whether you support it, critique it, or are simply curious about it, let’s keep the discussion going.