The global market for Islamic banking software is poised to grow by $416.83mn over the period from 2020 to 2024 on the ground of a 13%-compounded annual growth forecast in the period. These are the findings of a new report by UK-based market research firm Technavio called Global Islamic Banking Software Market 2020-2024 which looked at the current market scenario, latest trends and drivers and the overall market environment and also took into account the effects of the coronavirus crisis.
The study said that the market has a strong growth momentum which will retain throughout the period. In 2024, the market will still be in a rather early lifecycle stage, indicating that there is more substantial growth potential beyond that date at a high level of innovations.
Factors such as the rising Muslim population, the increase in international expansion of regional banks and the growing investments in sukuk will all contribute to the growth of the retail Islamic banking software segment in the coming years, the study says, noting that although the Covid-19 pandemic has been disrupting the growth of various industries, it is rather an accelerator for digital industries including the Islamic banking software sector in a major shift to online banking and digital payments triggered by the virus crisis.
Despite the strong growth, the market for Islamic banking software will remain fragmented across the world and the degree of fragmentation will accelerate during the forecast period, which would also inhibit major mergers between market players, the reports says, identifying those players as Temenos, Oracle, Infosys, Tata Consultancy, ICS Software, International Turnkey Systems, Nucleus Software, Path Solutions, Sopra Steria, Finastra, Virmati Infotech, AutoSoft Dynamics, Infrasoft Technologies, Silverlake Axis, among others. Regionally, the four countries with the top Islamic banking software providers as per saels volume are Germany, France, India and China, the study notes.
In general, Islamic banking software comprises a full spectrum of functional requirements of automated digital banking in accordance with Shariah principles while making banking processes more flexible and at the same time reducing costs and maximising productivity. Software solutions are at hand for segments such as Islamic deposits, Islamic investments, Islamic trade finance, Islamic treasury and Islamic capital markets and support products based on the fundamental Islamic finance principles, including murabaha, mudarabah, musharaka, ijarah, istisna and salam. However, an individual bank may come up with variations of the above products using its own parameters by fine tuning the Islamic banking software. There are both solutions for retail and corporate banking, whereby at present, substantial growth will come from the retail segment with the increasing distribution of smart payment cards, from the corporate sector and from growing use of cloud-based services.
Regionally, the biggest share of sales volume of Islamic banking software of close to 40% comes from Asia-Pacific, most of all from Malaysia, while North America contributes 24%. Interestingly, South America, where Islamic banking is far from developed, contributes a sales volume for 20%, according to the study. The Middle East and Africa region and Europe show 9% and 7% in market share, respectively. Asia-Pacific will continue to be the largest market in 2024 with a contribution of around 35% to incremental growth in the period, while growth between 2020 and 2024 will be slowest in Europe.
The Middle East and Africa will also offer several growth opportunities to market vendors during the forecast period. The rising Islamic finance assets in the Middle East and the growing concentration of vendors in this region will significantly influence the growth of the Islamic banking software market share of this region, the study says, adding that 54% of the market’s growth will originate from this region and at a faster pace than the growth of the market in other regions.
In terms of challenges for the Islamic banking software market, lack of expertise, awareness and training will be disadvantageous to the growth of the market participants. To make the most of the opportunities, market vendors should focus more on the growth prospects in the fast-growing segments, while maintaining their positions in the slow-growing segments, the report recommends.