4 Challenges Faced by the Islamic Banking Sector in Digital-age


For the last few decades, Islamic finance has been officially recognized as one of the major players within the banking industry. The industry has propelled its growth rate since the pandemic, proving its resilience with a total asset size of US$4 trillion in 2021. As economic growth in Islamic finance-centered countries is expected to boost post-pandemic, it is expected that the industry will further solidify its presence in the market with a 10% increase in assets from 2022 to 2023.

However, it is also widely agreed that the Islamic banking sector has yet to realize its full potential. As we dive deeper into the digital era, the more intense the challenges become that Islamic banks need to face in order to thrive. These challenges, if left unaddressed, can cause a major slowdown for many Islamic banks worldwide in the near future.

Inarguably, digital transformation is the one factor that Islamic banks can no longer ignore. Though it comes with many hurdles, it is imperative for Islamic FIs to stay updated and leverage the right technological innovations to enlarge their customer base and revenue growth. Digitalization refers to the process by which an organization’s usage of digital technology is adopted or increased. When it comes to banking, that means acquiring technology-centric capabilities that enable new methods of interaction and service delivery to improve the customer’s experience.

The post-pandemic era especially urges banks to quickly shift from their traditional, manual forms of services to digitalized and automated ones. This poses a problem not only for Islamic banks, but also for financial institutions (FIs) in general, as the demands of digitalization within the banking industry have never been greater.

As demand continues to rise, the banking sector faces the constant risk of falling behind technological innovations. This is especially true for Islamic banks, as they constantly have to be wary when it comes to choosing which technological adaptation to invest in.

Apart from that,  proper resources and a flexible mindset are crucial when it comes to taking the right path towards digital transformation. Without the right expertise, knowledge, and assistance, Islamic banks face the risks of conducting their business traditionally for a longer time, which entails higher costs of operation and a lower volume of transactions.

It is clear that certain qualities, such as being agile, responsive, and adaptive to technological disruptions occurring within the finance world, are important for Islamic banks to have. These institutions may face a significant reduction in revenue if they were to take digital transformation lightly, therefore lowering their competitive positioning.

One of the other notable challenges faced by Islamic banks in the digital era is also customer acquisition. Due to the high cost, the RE46qay        Muslim population in rural areas that lack Internet access may not be reached via digital onboarding platforms. For instance, though Muslims in Malaysia make up about 61% of the population, Islamic banks only hold a 34% market share instead. Aside from the geographical barriers, this is likely due to the lack of appreciation of Shariah’s fundamental values among market participants, as well as the lack of clear communications in their embodiment within financial solutions, services, and product offerings.

As Islamic banks follow an entirely different set of principles as opposed to conventional banks, oftentimes find that the process of compliance is not always clear-cut. This is due to the many nuances, fatwa, and different opinions concerning certain matters in Islamic finance. For example, integration with fintech is still a contentious issue, with some Islamic scholars believing that the uncertainty surrounding bitcoins and cryptocurrencies (and whether they circulate to fund illegal activities) makes it haram for Islamic FIs to adopt them. However, certain scholars are the opposite, as they ensure that, as long as the Islamic bitcoin is managed, controlled, and monitored to be Shariah-compliant, the technology can be adopted by the FIs.

Another challenge that many Islamic banks have to tackle is boosting customer satisfaction. Not only do they have to maintain the customers’ perception of the institution as being completely true to Sharia values, they also need to ensure that customers’ digital needs, such as mobile banking and e-wallets, can be fulfilled.

However, the technical aspects and Sharia rules concerning both of these digital platforms, as mentioned before, are not clear-cut. Therefore, Islamic banks need to constantly tread between the lines and make sure that the financing technology that they embrace can be molded to Shariah values. As it may take them longer to embrace digitalization, they risk losing customers who prefer fast and convenient digital services.

Islamic banks also face greater challenges when it comes to risk management. Whenever they are adopting new technologies or simply offering new products and services, many risks arose as to whether or not these products are Shariah-compliant. Failing to choose the right technology to invest in, and a lack of proper research and maintenance can cause the institution to go astray, which results in revenue loss.

Realize your fullest potential with INFOPRO

Ultimately, in countries where Islamic finance is growing rapidly, it is imperative for Islamic banks to prioritize their focus on adopting new technologies, while at the same time being cautious about ensuring Shariah compliance at all times. Digital transformations can not only increase customer penetration, but they can also help businesses stay competitive in today’s ever-changing market.

INFOPRO is more than capable of offering a diverse range of digital financial solutions that can ensure constant compliance. This is because the company is equipped with highly skilled experts and reliable guidance from Shariah advisors and council on the guidelines and instruments of Islamic banking. Our award-winning Islamic banking platform is also AI-driven, guaranteeing that any financial processes are made easier, more efficient, and holistic.

By going digital, Islamic banks can provide a more inclusive banking experience. By leveraging low-cost mobile and internet technologies, it is much easier for organizations to serve the unbanked Muslim populations in remote areas. This further asserts just how crucial digital transformation is for Islamic banks. Furthermore, the rapid digitization of financial services since the pandemic started has managed to boost the value of the global Islamic financial landscape, which is currently valued at $2.2 trillion and is estimated to grow by 12%  this year.  Hence, Islamic FIs should utilize this digitalization wave and embrace digital channels to widen their customer reach.

If you are looking for a Shariah-compliant digital solution provider, you have come to the right place. INFOPRO’s complete suite of personalized and customizable digital solutions can fit any Islamic bank’s model and help them reach their fullest potential. Simply contact us for a free consultation or browse our website to learn more about our product and service offerings.



Contact Us

Contact our sales team or business advisors to help your business.


Block B3 Level 8, Leisure Commerce Square, No. 9, Jalan PJS 8/9, 46150 Petaling Jaya, Selangor

+60 (3) 7876 6666





Block B3 Level 8, Leisure Commerce Square, No.

+60 (3) 7876 6666