StanChart: Singapore Emerging as Top Islamic Banking Market
The rise of Islamic finance has been dominated by a handful of countries with majority Muslim populations. But moving forward, Singapore could emerge as a top alternative market, according to Standard Chartered.
From what was once a niche alternative to conventional finance in the 1970s, Islamic finance has now grown with its asset size reaching $5.5 trillion in 2024 and forecasted to hit $7.5 trillion by 2028, according to a Standard Chartered report called «Islamic banking for financial institutions».
Although there is currently a network of over 1,980 Islamic financial institutions delivering Islamic finance products and solutions across more than 90 markets, 80 percent of assets are concentrated in five markets: Iran, Saudi Arabia, Malaysia, the UAE and Kuwait.
«The diversification of assets outside of these markets will depend on how the broader community responds to challenges and seizes opportunities in the coming years. Such challenges and opportunities will be both internal to the industry, and at a regional and global socioeconomic level,» the report said.
The Lion City as an Alternative
However, one market emerging as a sixth alternative: Singapore. According to Standard Chartered, its Singapore transaction banking team concluded its first Islamic trade transaction through a deal with Saudi National Bank that provided Shariah-compliant USD liquidity facilitated by an underlying metal-based Commodity Murabaha contract, an Islamic financing structure where the seller and buyer agree to the cost and markup of an asset.
«Outside of the established Islamic financing centers of Dubai, Malaysia and London, Singapore is emerging as one of the top markets for Islamic banking,» the report commented.
«Corporates looking to distribute their Islamic exposures are increasingly being lured by the benefits of the city-state’s low cost of funds. Moreover, its favorable sovereign ratings and ready access to investors make it a promising Islamic financing location for a burgeoning industry.»
Market Drivers
Moving forward, there are two major drivers for Islamic finance – regulatory developments and market expansion.
On regulations, established markets like Saudia Arabia and Malaysia are seeing increased strategic integration. Other countries like Indonesia, Kazakhstan, Oman and Türkiye have also adopted formal strategies, focusing on governance, research, capacity building and market infrastructure. In the case of Pakistan, its parliament passed a constitutional amendment bill in October 2024 requiring all forms of interest («Riba») to be eliminated by the end of 2027.
And on market expansion, Islamic finance is gaining traction in sub-Saharan Africa with Ethiopia, Malawi and Uganda welcoming Islamic banks since 2020. Elsewhere, Russia launched a two-year Islamic banking pilot program in 2023 focused on Muslim-majority regions.
Growth Inhibitors
On the other hand, the Islamic finance market also faces inhibitors of further growth.
Regulatory complexity, mainly from implementation, is proving to be challenging. Liquidity is another headwind with issues such as limited Shariah-compliant liquidity instruments, a shallow secondary market, shortage of market players as well as zero or lower-return facilities. Risk management lacks standardization such as cross-border guidelines.
«Islamic finance is an evolving and increasingly influential segment of the global financial ecosystem,» commented Khurram Hilal, CEO, group Islamic banking, Standard Chartered. «Fostering innovation, strengthened market connectivity and an elevated focus on sustainability will unlock the greatest opportunities in the future of Islamic finance.»
