The Next Chapter in Islamic Finance: Higher Risks but Higher Rewards

February 4, 2010
Industry Trends
Global

Abstract

REPORT PREVIOUSLY PUBLISHED BY OLIVER WYMAN

Islamic finance represents 1% of global assets. Surveys suggest that half of the 1.4 billion Muslims worldwide would opt for Islamic finance if given a competitive alternative to conventional services. The market has been growing at over 30% annually since 2000 and is set for continued strong growth.

In The Next Chapter in Islamic Finance: Higher Rewards but Higher Risks, Oliver Wyman conducts a review of the global Islamic financial services market across segments and geographies, with a focus on retail and wholesale banking, and provides insights on emerging trends and success factors within each segment.

Despite tremendous interest and phenomenal growth rates, most institutions are far from taking full advantage of that growth. Success will distinguish the acquirers from the acquisition targets in the medium-term consolidation of the sector.

Wholesale banks have a large focus on real estate and vanilla lending and offer simple products that use mostly Murabaha and Ijara structures. Retail banks are very profitable, but most banks have an undifferentiated product offering, poor client servicing, and sales efficiency problems.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Introduction

1

Executive Summary

3

The global emergence of Islamic finance

5

Wholesale banking: moving beyond vanilla financing

13

Retail banking: towards differentiated offerings and streamlined delivery

23

Conclusion

35

Appendix – what is Islamic finance?

36

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