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Islamic banking outpacing conventional banking: Mashreq Islamic Banking Head aims to modernise and unlock full potential

Islamic banking outpacing conventional banking: Mashreq Islamic Banking Head aims to modernise and unlock full potential
20 May 2024 09:20


Earlier this year, assets managed by Islamic banks in the UAE exceeded Dh700 billion for the first time in history. This milestone followed a sustained period of growth for the sector, which outpaced its conventional counterparts in 2022.

For Ibrahim Al Mheiri, Executive Vice President and Head of Islamic Banking at Mashreq, this momentum represents an untapped opportunity for both his bank and the UAE. Speaking to Aletihad, Al Mheiri emphasised the need for the industry to evolve to meet the demands of the modern age.

“At a fundamental level, Islamic banking needs to respond to the same generational shift as conventional banking. We are seeing customers abandoning traditional branch service channels and increasingly relying on digital channels, and Islamic banking must keep up,” Ibrahim told Aletihad.

“Our customer base, and likely that of our industry peers, is now heavily skewed towards Millennials and Gen Z; clients who demand an entirely digitally enabled experience and will not compromise on service or product features.”

According to a report by Fitch Ratings, in 2022 Islamic banks grew by 8% compared to 3% recorded by conventional banks. A 2023 report by the London Stock Exchange Group forecast that assets held by Islamic banks would grow to $6.7 trillion by 2027.

Still, this represents a fraction of the overall banking industry in the UAE and the wider region. Ibrahim believes that to continue closing this gap, it is crucial for the sector to focus on higher-end technologies to keep pace.
“A key element of such tech-led solutions in this new digital banking world is generative artificial intelligence, or GenAI.

Here, I would suggest banking may benefit more than other industries from the new technology; productivity could rise by as much as 30% to 40%, thanks to data-driven insights, the ability to predict customer behaviours via AI models, and next-level credit-worthiness assessments,” Ibrahim explained.

“Beyond GenAI, the entire banking process is digitalising. Onboarding journeys take a matter of minutes, offering an adaptive, synergistic client experience; Banking-as-a-Service is thriving as a critical part of banking strategies, integrating experiences with other industries such as telecoms and fintech. Within the industry, all players must focus on continuing to enhance the digital experience to stay ahead of the curve.”

Islamic banking is a principles-based strategy that, in theory, assures compliance with established Islamic values as well as stability and sustainability. For this reason, Ibrahim believes there is potential to align the system with other macro-trends in finance to bolster its popularity, including the move towards environmentally sustainable finance.

“Alongside digitalisation, banking-and indeed many other industries and verticals-is also seeing a strong focus on sustainability. I identify notable similarities between the principles of Islamic finance and those of sustainable finance, perhaps lending Islamic banking a hand in embedding sustainability at its core,” he said.

“Employing criteria such as shared benefit, reliance on actual underlying assets, and avoidance of pure financial transactions, as well as placing the utmost importance on accountability, transparency, long-term risk reduction, and the restriction of certain products and services. It is identifiable as a long-term, low-volatility, risk-reduction technique that, in many ways, has an overall goal of sustainability.”

“While the growth of Islamic banking has indeed exceeded that of conventional banking in many countries, I feel we are yet to see true penetration of Islamic finance in countries with majority Muslim populations.”

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