Rifki Ismal, Ph.D., a Member of the Sharia Capital Market at the National Sharia Council (DSN) of the Indonesian Ulema Council (MUI), had the opportunity to present as a guest lecture at SBM ITB on Friday, September 28, 2022. Rifki, who also teaches at the Tazkia Islamic Institute, presented the latest Islamic financial condition entitled “Islamic Finance and Banking System Course: Current Issues and Development of the Global Islamic Financial Industry”.
According to Rifki, financial regulators face great challenges during the COVID-19 pandemic. They strive to maintain financial security, the function of core markets, and ensure the flow of financing into the real economy.
The Islamic banking industry is among those that have entered a crisis due to COVID-19. However, the Islamic banking capital ratio remains stable, well above the threshold of the International Accounting Standards Board (IASB) and other regulations.
According to Rifki, the total assets of the world’s Islamic Financial Services Industry (IFSI) in 2020 grew 10.7 percent, reaching US$ 2.70 trillion. It grew amid the depreciation of several emerging market currencies, leading to a decline in dollar assets.
In 2021, its assets grew by 11.3%. IFSI’s total assets was around USD 3.06 Trillion at the end of 2021, distributed to the Gulf Cooperation Council/GCC area (52.4%), Middle East and South Asia (23.5%), and Southeast Asia (17.4%). Africa Region (2.1%), and others (4.5%).
IFSI’s sectoral performance is divided into three parts. First is Islamic banking, where there is a growth (year-on-year) of 4.3%, and the percentage of shares is 68.2%. From 2018 to 2021, Islamic banking continues to experience positive growth.
The second sector is the Islamic capital market, where the growth (year-on-year) is 26.9%, and the share percentage is 30.9%. The third sector is the takaful sharia insurance alliance, where the growth (year-on-year) is -14.8%, with the share percentage of 0.9%.
The ongoing digital transformation process in Islamic finance continues to play an important role in determining effectiveness and efficiency. Islamic finance is also advised to carry out transformations in other aspects, such as business and human resource transformations, to maintain industry resilience.
The prospect of Islamic finance also depends on digitalization and a new lifestyle. So far, there has been a tremendous digital transformation in 2020 and 2021.
The significant increase in digital platforms has led to innovations, one of which is the remote work system, creating user-friendly products and services. The growth of financial technology and the emergence of innovative business models in the global service sector are also evident in global Islamic finance.
In general, the health and resilience of Islamic finance will persist but may not fully recover to pre-pandemic levels. The key to economic recovery depends on how well the government handles the health crisis as a source of disruption.