The World Bank explains Islamic finance as “equity-based, asset-backed, ethical, sustainable, environmentally and socially responsible finance.” In previous Forrester research, we have described many of the core principles of Islamic banking: limitations on interest, certain contractual considerations, and the prevention of gambling — which limits many of the speculative aspects of financial services. These principles make the Islamic Banking sector worthy of consideration in itself; and the tools and technologies that support Islamic banking are important for any financial services firm operating in geographies with large Islamic populations. However, the market is relevant for other key reasons:

  • Islamic banking is of a significant size and continues to grow. For example, Islamic commercial banking hold totals assets of about US$1.1 trillion and has captured a 15% to 20% market share of total commercial banking in countries where Islamic banking exists (according to Hamdan Bin Mohammed Smart University in the UAE). Recent estimates predict growth rates of about 9% for the finance market and 10% for commercial banking — rates beyond the growth of many conventional banks (according to the Dubai Islamic Economic Development Centre andThomson Reuters).
  • Conventional banks need to protect their customer base and retention rates. Al Rayan Bank is one of several Islamic banks in the UK, while KT Bank is the first Islamic Bank in Germany. BAWAG bank in Austria launched Islamic banking earlier this year. More than 20 conventional and Islamic financial services firms, such as Lariba American Finance House and Lincoln State Bank, offer Islamic banking products in the US. In the long term, many more conventional banks will show an interest in Islamic banking in an effort to retain customers who are more interested in Islamic than conventional banking products.

Whether a bank wants to cost-effectively improve customer service or accelerate its growth by offering Islamic banking, it needs a sophisticated modern banking platform. Banks in the process of selecting an off-the-shelf Islamic banking platform need an overview of the capabilities of these solutions to make informed decisions for their vendor long and short lists. To help these banks, Forrester reviewed 14 Islamic banking platform vendors and their off-the-shelf solutions (see the figure below). We found, for example, that the need for proven live scalability of an Islamic banking solution will limit the number of shortlist candidates — and that vendors offer their Islamic banking platforms with a stronger focus on on-premises operations than on SaaS-like delivery. The related report highlights the key differences and similarities of these solutions.