Saudi Arabia to ‘lead surge in Islamic finance’

• Market worth $7.4bn by 2033
• Saudi banks offer sharia-compliant products
• Responsible for 85% of Saudi funding

Saudi Arabia’s push to develop more sharia-compliant investment products could attract long-term capital that has struggled to find scalable outlets, the founder of a multi-billion dollar asset management company said this week.

“This could be by far the most important access to capital over the next 10 decades,” Hazem Ben-Gacem, founder of Blue Five Capital told the Public Investment Fund Private Sector Forum in Riyadh.

Shariah-compliant finance is a financial system based on Islamic law, which prohibits interest (riba) and promotes risk-sharing, ethical investments and fairness. Instead of charging interest, Islamic banks use profit-and-loss sharing models such as mudarabah (partnership) and musharakah (joint venture).

While demand for sharia-compliant investments spans 1.9 billion Muslims worldwide, Ben-Gacem said the market remains fragmented and underdeveloped, in part because of the technical and governance complexity involved.

The global Islamic finance market is estimated to grow from $3.7 billion in 2025 to reach $7.4 billion by 2033, growing at a compound annual growth rate of 9.15 percent, according to Straits Research.

Ben-Gacem, the former co-CEO of Bahrain asset manager Investcorp, said Saudi Arabia could shape the regulatory direction of Islamic finance.

“Saudi Arabia is a custodian of a lot of the thinking, the knowledge, the innovation around Islamic products, sharia-structured financial instruments,” he said. “This has been a very substantial market that has been in large part ignored.”

All major Saudi banks offer sharia-compliant products, while Alrajhi and Alinma – the kingdom’s second and fourth-largest lenders by assets – are fully fledged Islamic banks.

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Sharia-compliant financing accounts for 85 percent of all financing in Saudi Arabia, the highest proportion globally in markets where both conventional and Islamic banks operate, according to Fitch Ratings.

The Saudi Central Bank regulates banks, although there are no specific Islamic finance licences, while the Capital Market Authority governs sukuk and securities, Riyadh-based law firm Stat Law wrote in a July note.

Islamic finance is central to Vision 2030, Stat Law wrote.

“Given the scale of public funding, this has made Islamic finance a dominant market practice across project and infrastructure financing,” the note states.

Government funds operating in various sectors including housing, tourism and culture have deployed Islamic financing products such as cost-plus financing – known as murabaha – in partnership with Saudi banks.