Islamic Banking in Africa: A Booming Market with Growing Pains

Abstract

Islamic banking, also known as ethical banking, is a banking system for those who avoid conventional banking due to religious beliefs. It drives the creation of new financial instruments that meet the needs of a wider range of customers, and it is currently accepted as an essential banking model in the global financial landscape. This paper assesses the opportunities and challenges of Islamic banking in Africa using a systematic literature review by examining 19 articles. The paper argues that Africa is the original home of modern Islamic banking practices, and it can become an essential hub for this banking model in the future. The results demonstrate that the Islamic banking market has potential for those seeking expansion and the establishment of Shari’ah banks, as well as promising avenues for the growth of Islamic banking and finance and aligning with the continent's socio-economic dynamics by providing inclusive financial solutions. The findings also demonstrate the existing opportunities, including the large Muslim population, arguing that popularity can drive Islamic banks on the continent, while limited awareness, misconceptions, and legal restrictions are the main challenges for Islamic banks in Africa, hindering public understanding of how Islamic banks work. The paper recommended that Islamic banks should conduct market research, create innovative products, and apply tailored marketing strategies. The study also suggests that governments should recognize Islamic banks as distinct financial institutions in order to better support them.