The Global Development of Islamic Banking

 

The thesis that Islamic economic principles are inclusive is evidenced by the acceptance of Islamic banking among non-Muslims, both in Indonesia and abroad. Sharia-compliant banks are also expanding in countries with non-Muslim majorities, such as the United Kingdom. Sharia finance has been present in the UK since 1980, coinciding with developments in the London financial market. London is recognized globally—by both Muslims and non-Muslims—as a hub for Sharia finance. The Bank of England permits banks to operate based on Islamic Sharia principles and provides services such as the "Sharia-Compliant Facility," which was the first non-interest-based liquidity facility offered by a central bank in a Western nation. The central bank has also developed other facilities, including the Sharia-Compliant Open Market Operation.

The UK is home to five fully Sharia-compliant licensed banks, with combined banking assets of approximately US$4.7 billion. Sharia finance is considered attractive because, unlike conventional credit, Sharia financing does not charge interest. This type of financing is particularly well-suited for socially conscious or environmentally driven businesses.

Total Sharia-compliant banking assets in the UK—including Islamic financial products offered by major conventional banks—stood at approximately £4.1 billion in the first half of 2018. Global Sharia banking assets reached around US$1.7 trillion by the end of 2017, marking a year-on-year increase of 2.7 percent. In 2016 and 2017, the UK ranked as the 17th largest market for Islamic finance out of 48 countries.

Islamic finance appeals to the British public due to its underlying principles of equitable distribution and fair trade. Furthermore, Sharia banks are perceived as honest institutions that prioritize the well-being of society as a whole. Offerings include a range of Islamic financial products—spanning savings accounts, investments, mortgages, and insurance policies to Sharia-compliant student loans. Furthermore, the funds raised are invested in relatively safe assets such as real estate or precious metals—investments that strictly adhere to Islamic principles. They are not used for gambling, alcohol, pornography, weapons, tobacco, interest-bearing activities, or other speculative ventures.

As of November 2019, 126 countries worldwide had adopted and were developing Sharia banking systems. This reflects a positive impact of globalization: the acceleration of communication, enabling the rapid spread and exchange of knowledge, culture, ideologies, and more.

“Islamic financial institutions recorded a strong 2021 while continuing digital investments.” Moreover, the net profits of global Islamic banks rose by more than 50% in 2021, with banks in the Gulf region, in particular, achieving outstanding results. Customer deposits continued to grow, fueling the expansion of financing portfolios.

Beginning in the 2000s, European nations started to open up to the Sharia economy and adopt its economic concepts. Rapid growth in the sector became evident after 2004, when The Islamic Bank of Britain (IBB) was officially established as Europe's first Sharia bank. The UK economy is grounded in social welfare combined with a free-market approach; this compatibility may well explain why the Sharia economic system is a good fit for the country.

Sharia Financial Institutions in Indonesia Also Utilized by Non-Muslims

Bank Muamalat Indonesia (BMI) was the first Sharia bank in Indonesia, established on November 1, 1991. Alongside it, various other financial institutions developed—such as Sharia People's Financing Banks (BPRS) and cooperatives (like Kopontren in Islamic boarding schools)—that practice Sharia-compliant savings and lending.

As of early 2023, PT Bank Syariah Indonesia Tbk (BSI) was ranked as the sixth-largest bank in Indonesia. Bank Syariah Indonesia recorded a significant increase in assets from the previous year, rising from IDR 265.28 trillion to IDR 305.72 trillion. Among Sharia banks, the next positions were held by Bank Muamalat, followed by Bank Kepri Syariah, which is owned by the Riau and Riau Islands provincial governments.

Data indicates that approximately 15% of Bank Muamalat's customers are non-Muslims. One of the attractions is the availability of Sharia-compliant housing financing (KPR) products. Installment payments are lower and do not spike from year to year; the installment amount remains constant from the first month through the final year, in accordance with the agreed-upon loan term. It is transparent.

A similar situation exists in Bali. BTPN Syariah’s Bali area branch reported that 90% of its customers are non-Muslim. The key lies in explaining that Sharia banking is not limited to Muslims and in translating financial contracts (akad) into easily understandable language. The Balinese community remains interested, even after being informed that the businesses run by BTPN Syariah’s ultra-micro financing customers must be halal—meaning, for instance, they cannot trade in alcohol or pork.

Research conducted in North Sumatra found that non-Muslims become customers due to the positive image of Sharia banks, the quality of service, and the convenience offered. Economic reasons emerged as the primary factor driving non-Muslims to become customers. The majority of non-Muslim respondents cited the absence of administrative fees, low minimum balance requirements, and free interbank transfers as reasons for choosing to become customers of Sharia banks. Other research concludes that the interest of non-Muslim customers in Sharia banking is driven by perceptions regarding the benefits gained, flexibility regarding installment arrears, and low capital costs.

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