Technology and digitalization could help address structural constraints in the Islamic finance industry by expanding market access, improving cross-border participation and enabling the development of new financial infrastructure, Secretary-General of the Islamic Financial Services Board (IFSB) Dr. Ghiath Shabsigh said, Trend's special correspondent reports from Tashkent. Speaking at the Silk Road Finance & Technology Forum in Tashkent, Shabsigh noted that Islamic finance is expected to become increasingly important globally over the coming decade, particularly across the Middle East, North Africa, South Asia and Southeast Asia.
According to him, the industry has achieved significant scale, but its financial ecosystem remains unevenly developed. The industry remains heavily concentrated in banking, which accounts for almost 70% of global assets,” Shabsigh said. He noted that Islamic capital and money markets, as well as the non-bank financial sector, remain relatively underdeveloped in many jurisdictions.
The range of instruments available for investment, funding, liquidity and risk management also remains limited. Shabsigh highlighted the sukuk market as an example. While issuance has grown significantly in recent years, he said, market depth, secondary-market liquidity and investor diversity remain areas requiring further development.
Limited market depth and a narrow range of instruments leave banks with fewer options for managing funding and liquidity, particularly under stress,” he said. Another issue identified by the IFSB is the emergence of what it calls “hybrid risk” in Islamic banking. According to Shabsigh, the balance-sheet characteristics of Islamic banks in some developing markets are increasingly resembling those of conventional banks, potentially changing their risk profiles.
At the same time, he said technology could provide new opportunities to overcome some of the structural barriers facing the industry. The opportunity is not simply to improve efficiency, but to use technology to overcome frictions that have limited participation, market access and activity across jurisdictions in the Islamic finance ecosystem,” Shabsigh said. He added that digitalization could facilitate greater cross-border participation and allow individual markets to access a broader base of investors, capital and financial instruments.
Shabsigh stressed, however, that digital transformation should go beyond simply transferring existing practices into digital form. According to him, the development of new technologies also increases the importance of strong regulatory and financial foundations, as greater speed, scale and interconnectedness can accelerate the transmission of risks. As technology drives greater scale, speed and interconnectedness across markets, it can also accelerate the materialization and transmission of risks,” Shabsigh said.
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