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State of the global Islamic economy: Eyeing new frontiers

State of the global Islamic economy: Eyeing new frontiers

With Muslim consumers across the world seeking out faith-based products and services, the Islamic economy is seeing robust growth among all its different verticals

As 1.8 billion Muslim consumers seek to fulfil their faith-inspired needs, creating a formidable consumer base, worldwide spending across the Islamic economy is estimated to grow further.

Affinity and affluence among Muslims worldwide, growing engagement from eminent brands, increased investor focus, marketing campaigns and branding tied to faith-based needs are rallying the sector’s growth.

In 2018, Muslims spent $2.2 trillion across the food, pharmaceutical and lifestyle sectors, representing a 5.2 per cent year-on-year growth. That figure is forecast to reach $3.2 trillion by 2024, the State of the Global Islamic Economy Report found.

The report revealed 10 core drivers spurring the growth of the Islamic economy: growing population; increasing affluence; increasing religious affinity; digital connectivity; ethical consumerism; multinational growth; economic diversification and development; halal trade; regulations and investor returns.

Measuring the strength of the Islamic economy across 73 countries based on supply and demand drivers and other considerations, Malaysia led the Global Islamic Economy Indicator (GIEI) ranking with a score of 111, followed by the UAE (79), Bahrain (60), and Saudi Arabia (50.2).

In terms of business opportunity, halal ingredients, Islamic fintech, and luxury modest clothing were among the key sectors for growth in 2020. Locally, Dubai is seeking to establish itself as the capital of the Islamic economy and has taken several steps towards achieving that goal. The Dubai Islamic Economy Development Centre (DIEDC) launched its renewed Islamic economy strategy (2017-2021) three years ago to identify new metrics to monitor the growth of three core sectors – Islamic finance, halal products and Islamic lifestyle (including culture, art, fashion and family tourism) and measure their contribution to the country’s GDP.

In 2018, the Islamic economy contributed Dhs41.8bn – 9.9 per cent – to Dubai’s GDP, marking a 2.2 per cent increase from Dhs40.95bn in 2017.

ISLAMIC FINANCE
The GCC’s banking landscape has, in recent years, taken substantial strides in terms of digitisation, product expansion and customer acquisition.

Islamic banks in the UAE and regionally have also kept pace, garnering considerable attention.

Earlier this year, Dubai Islamic Bank (DIB) completed the acquisition of rival Noor Bank to create a lender with total assets exceeding Dhs275bn, establishing it as one of the largest Islamic banks in the world.

Meanwhile Malaysia’s biggest Islamic bank – Maybank Islamic – also launched operations in the Dubai International Financial Centre (DIFC) in February – marking its first overseas office.

The 2019 Islamic Banking Index by Emirates Islamic bank, which polled more than 900 respondents with a UAE bank account and a minimum monthly income of Dhs5,000, revealed that 60 per cent had consumed at least one Shari’a-compliant product, up from 55 per cent in 2018. Meanwhile, interest of surveyed nonMuslim customers in Islamic products also grew since 2018, including a 9 per cent increase in Islamic current accounts, and a 6 per cent hike in Islamic savings accounts.

“Islamic finance is set to keep expanding through the 2020s and beyond as the GCC countries, Malaysia and Indonesia help drive growth in Shariah-compliant financial products. If we look at Saudi Arabia, Moody’s expects Islamic finance penetration in the kingdom to increase to 80 per cent of system-wide assets (including both conventional and Islamic financing assets) over the next 24 months, up from 77 per cent in 2018, driven by increased demand from both corporate and retail clients,” says Philip King, global head of Retail Banking at ADIB.

“However, for the Islamic finance industry to continue to grow to its full potential and reach the global target of $3.8 trillion in assets by 2022, it will need to appeal beyond a purely Muslim customer base. This is a transformation that ADIB has managed successfully and we are seeing growth in our non-traditional customer base,” King adds.

Similar to conventional banking and several other industries, technological advancements such as fintech, artificial intelligence (AI) and blockchain, among others could also facilitate the Islamic finance space by offering faster and transparent transactions, improving security and governance.

“Innovation, including the growth and development of the fintech market segment, has created unprecedented growth opportunities for Islamic finance. Crowdfunding and various innovative payment services compatible with Shari’ah principles (including tokenisation), have allowed retail investors to access a wider variety of financial services and assets, while improving on transaction security,” Bryan Stirewalt, CEO, Dubai Financial Services Authority notes.

“Technology has a big role to play in further improving the way the market functions and increasing public awareness of Islamic products. By allowing easier comparison across Islamic finance products in the areas of banking and takaful, it has aided in greater market penetration.”

However, as the larger ecosystem continues to be impacted by the ongoing Covid-19 pandemic, the Islamic finance space has also been affected. In light of lockdown protocols and ensuing recessions in Islamic finance’s core countries, the industry is expected to witness low-to-mid-single-digit growth in 2020-2021, after 11.4 per cent growth in 2019 backed by a strong sukuk market performance, an S&P Global Ratings report suggests.

“Islamic finance is known for providing socially responsible products as well as sustainable finance and the Covid-19 environment could give an opportunity to leverage them. At ADIB, the relief programmes and support measures that we are offering to our personal and business customers have had strong take-up, and we remain responsive to their changing needs,” opines King at ADIB.

Matthew Escritt, partner, Banking and Finance, Pinsent Masons Middle East adds: “In today’s liquidity constrained environment and as all businesses grapple with the complex commercial impact of the pandemic, the opportunities for the Islamic economy are clear. Well-capitalised Islamic financial institutions are well placed to plug the anticipated liquidity gap and support sound businesses through a period of profound economic uncertainty. “What is particularly compelling about this juncture is that these opportunities to grow market share are matched in the UAE by a concerted effort on the part of the government to improve the regulatory environment in which the Islamic economy will operate. The innovative legislative initiatives that have recently been launched by the Dubai Islamic Economy Development Centre are particularly opportune and it seems very likely that this confluence of events will herald the start of a purple patch for the entire industry.”

MODEST FASHION
Modest clothing is well on its way to be a part of the mainstream fashion roster, whether in stores or on the ramp. Prodded by millions of Muslims donning modest outfits, several marquee brands have joined the bandwagon, including Nike, which offers modest swimwear for female athletes.

Similarly, British designer Hana Tajima collaborated with Japanese retail company Uniqlo to introduce a modest collection. Modest fashion has also made its way into catalogues, campaigns, and covers – Halima Aden was the first hijabi model to grace the cover of British Vogue. Meanwhile, events such as Modest Fashion Weeks have brought cultural and ethnic inclusivity in the spotlight. Dedicated to the industry with more than 300 designers and brands, and over 500 influencers, the events were held across the globe from 2016, including in Istanbul, London, Dubai, Jakarta and Amsterdam.

“I think the concept of modest fashion has truly exploded in the last few decades. The industry is generating billions of dollars and is expected to rise in the coming years,” says Mosika Zeid, founder of modest fashion brand Desert Cove.

“When I started Desert Cove, I felt there was a big gap. As someone who dresses modestly, I found the options were limited, especially when it came to good quality and aesthetics. But it gladdens me to see that modest fashion is evolving. You see more brands coming in, influencers bringing more charm to the entire modest fashion industry and now Modest Fashion Weeks are also happening. So overall, modest fashion is in a good place.”

Scaling demand for fashionable yet modest clothing to fight stereotypes and represent Muslim women has also seen growing investor interest. In 2019, Goldman Sachs and Wamda Capital acquired a minority stake in Turkey-based modest fashion retailer Modanisa.

“The majority of my customers are Muslims. I’d say about 30-40 per cent are non-Muslims, particularly in the eastern regions where women work and live and like to dress modestly to respect the culture. Modest fashion is definitely something even non-Muslims are adopting. To be honest, having non-Muslims buy my clothes makes me very happy; I feel now more and more people are willing to question the trends laid down by the fashion moguls and are happy to follow their own personal style,” Zeid opines.

HALAL COSMETICS
In line with fashion, the demand for halal cosmetics among Muslim consumers is also rapidly growing. The halal cosmetics and personal care market size is poised to grow by $28.34bn during 2020-2024, market research company Technavio noted.

“The younger Muslim generation is becoming more conscious over the presence of chemicals and non-halal ingredients in their cosmetics and personal care products. Manufacturers of halal cosmetics are now forced to introduce new technologies in the area of research and development, formulation, and production. This is all due to the change in buying behaviour, as product lines must now include new halal products dedicated to different age groups and ethnicities. This is a growing industry – very competitive and fast paced. If you can keep up with the product innovations then you are safe in the game,” Shamalia Mohamed, founder of US-based Amara Halal Cosmetics opines.

Brand identity plays a major role in attracting new customers and helping consumers differentiate between halal and conventional brands.

“The use of the halal logo is a significant marketing tool as it communicates and convinces consumers that the products have been manufactured according to Islamic requirements,” Mohamed adds.

HALAL FOOD
The halal food market is expected to build momentum across the global supply chain as a burgeoning Muslim consumer base expands along with retail.

Global Muslim spend on food and beverage, valued at $1.4 trillion in 2018, is forecast to reach $2 trillion by 2024, the SGIE report reveals.

Given its popularity, halal food is expected to become a matter of standard choice for Muslims and nonMuslims, across several Islamic and non-Islamic economies.

Regionally, in the UAE, the Emirates Standardisation and Metrology Authority (ESMA) launched the ‘Halal National Mark’ to regulate and certify halal products.

Additionally, the Dubai Airport Freezone Authority (DAFZA) launched the Halal Trade and Marketing Center, to support global halal product stakeholders and facilitate their growth.

Technology is also facilitating the growth of this sector; Singapore-based foodtech startup WhatsHalal aims to benefit both F&B manufacturers and consumers with its halal traceability platform that connects the entire supply chain.

HALAL PHARMACEUTICALS
Malaysia, recognised as a global halal hub, established the world’s first halal pharmaceutical standard, MS 2424:2012 Halal Pharmaceuticals as general guidelines.

As of 2017, a total of 251 facilities were licenced by the Drug Control Authority (DCA), part of the Ministry of Health in Malaysia, according to official figures.

Meanwhile, in terms of business opportunity, the SGIE report has highlighted halal gelatin, halal vaccines, halal nutraceuticals, and holistic halal-based homeopathy as hot sectors for growth in 2020.

The global halal nutraceuticals and vaccines market hold substantial potential for growth, estimated at $49.3bn in 2019 and expected to reach $88.5bn by the end of 2027, global market intelligence firm Coherent Market Insights noted.

Additionally, in 2015, the global gelatin market was estimated at $2.7bn, with the use of gelatin in pharmaceuticals and nutraceuticals estimated at $1.3 billion, Saakh Pharma’s research suggests.

Pharmaceuticals and nutraceuticals are the second and third largest application categories of gelatin after food, accounting for 26 per cent and 21 per cent of the market respectively, the research added.

MUSLIM TRAVEL, HALAL MEDIA AND RECREATION
The travel sector has also seen an uptick in faith-inspired demands. A widening Muslim diaspora scouring for holistic travel packages that are not only conditioned to religious sensitivities but entail content-rich experiences, have led to the manifestation of specialised service providers.

Travel-related, faith-inspired content generally entails privacy enhancements, alcohol-free environments, halal dining options, and prayer arrangements.

The Mastercard-CrescentRating Halal Travel Frontier 2019 Report identified 17 trends that are expected to shape halal travel. Technology, environment, and social activism will greatly impact the halal travel industry while technologies such as augmented reality (AR), virtual reality (VR) and AI will also drive new trends, the report found.

“There has certainly been an increase in the demand for faith-inspired travel and I think much of that is due to parts of the industry reacting to the need for it. I believe there is plenty to come from the travel-tech sector when it comes to delivering a great customer experience, however that’s for both faith-based and mainstream travel demands. With apps currently available to customers looking for Qiblah finders or content rich destination guides, these have helped in making Muslim travellers confident in exploring new destinations,” notes Nabeel Shariff, founder of halal holiday site Rihaala.com.

“Muslim travellers are as aspirational and adventurous as other lifestyle segments, so the first key driver is delivering exceptional experiences. Tailoring those experiences to their faith requirements adds a further layer of comfort and confidence in the destination, hotel or attraction they are investing their time and money into. The third key driver is about making those requirements easily accessible and common place in a destination,” Shariff adds.

Meanwhile, halal media and recreation have a widening portfolio of content – movies and TV series – as well as apps aimed at Muslim needs.

Muslim spend on media and recreation was $220bn in 2018 and is forecast to reach $309bn by 2024, the SGIE report reveals.

While events such as the Mosquers Film Festival, that aims to entertain and build bridges by presenting Muslim experiences, are emerging, faith-inspired content for children such as cartoons are also gaining strength and prominence.

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