Islamic finance and banking industry in Saudi Arabia

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Islamic finance and banking industry in Saudi Arabia
The sector of finance and banking system is very important for the global economy to grow. Research from NAPS (2021) affirms this by revealing that the gross domestic product of the world stands at $79 trillion and that of stock exchanges is valued at $78.2 trillion. The magnitude of these figures is a clear suggestion of how powerful an influence the financial sector has on the world economy. The sector determines the status of a country’s economy and defines the difference between developing and developed nations. For the sector to thrive to that magnitude, there should be a suitable environment that can support robust financial systems. Such systems involve institutions like banks and insurance firms that allow funds to be exchanged by borrowers, investors, and lenders (Financial System Definition, 2019b). The system also consists of a legal framework that governs the operations of the stakeholders. The framework provides rules and regulations that ensure everything done by the banks is fair. Such rules may therefore be based on religious doctrines, political or economic traditions within a country. For example, there is a difference between the conventional banking system and the Islamic banking system. The latter is mostly reinforced by Islamic laws that must be practiced by any country with Islam as its main religion. Islamic finance.
Shariah law provides the foundation on which all aspects of the Muslim lifestyle are anchored; be it socially, politically, or economically. Considerable development of the Islamic finance sector has been boosted by oil mining leading to the development of oil-related industries in the economies of the GCC (Gulf Cooperation Council) Countries. This development, however, has partly been due to the need by the global Muslim community to use the financial systems governed by the dictates of shariah laws. Within the Islamic banking system, profit is shared with the clients who are consumers of the financial services. Similarly, the bank also shares any loss experienced within the business with the clients. The profit from deposits is also shared based on ratios of the clients’ deposits. Contrastingly, the conventional banking system has fixed interest charges made regardless of whether or not the client is profiting. Islamic banks focus more on project viability depending on the capability of the entrepreneur. They further encourage investing in enterprises rather than store money in fixed accounts which have no interest at long last. Investing in enterprises is therefore beneficial because it will bring. By investing in enterprises, investors thus support one another to share the common profit as well as loss. This practice of Islamic banking promotes economic growth because entrepreneurs strive to excel and benefit as a community. The system is against risky, unnecessary situations with high uncertainty such as speculations (Habib, 2018).
The following paper looks into the situation of Islamic banking in Saudi Arabia. The kingdom has practiced Islamic principles since its establishment and has incorporated Islamic doctrines to govern all the laws within the kingdom (Abalkhil, 2018). These rules are enforced by SAMA (Saudi Arabian Monetary Authority) which is Saudi’s central bank. The kingdom has 24 licensed banks of which 12 are local-based and 12 of foreign origin (Corporate Finance Institute, 2021). Some functions of SAMA include issuing national currency, known as Saudi rial, controlling foreign reserves of the country, stabilizing and monitoring exchange rates. Additionally, the body also ensures a robust domestic infrastructure of finance in the country (Corporate Finance Institute, 2021). Saudi Arabian banks are classified into commercial, industrial, agricultural and real–estate–based banks. This paper looks into Saudi National Bank, otherwise called AlahLI which is a veteran Islamic-compliant bank, and explains its products and services providing insight into Saudi Arabia’s future banking and finance industry.
Literature review
This study explores the report on the first future view of vison 2030. Which have not been so much focused. Such is very vital in the future of Islamic finance in SA. Google trends show contracts used by Islamic banks in the financial needs of customers. Such contracts are like Ijarah, Tawarruq, Murabahah, Mudarabah, Salam and Musharakah google trends reveal an intensified interest in Murabahah over the years 2014-2019. According to the paper, the focus on Islamic finance and related contracts has not been investigated In Saudi yet is vital to Islamic Banks shaping services according to the interest of customers. The study is the first of a kind investigating trends such as in the Islamic finance industry. It defines different Islamic financial contracts and their applications in the Islamic banking sys. Google trend service generate a trend in the interest of contracts in Islamic finance, Saudi
Research by (Abalkhil, 2018) investigated Islamic Finance in Saudi Arabia concerning the framework of regulations that has worked to the advantage of the finance industry in the kingdom. The paper looks into the principles surrounding finance and proceeds to the legal framework favoring it in Saudi. The paper looks into emerging issues for the country’s vision of 2030 aimed at solving financial obstacles within the kingdom. Problems discussed surrounding sharia institutions include the absence of uniform standards in the means of administering shariah. There is a need for conformity to effectively manage products related to the sector. The paper defines Sukuk and explains how it is different from other concepts in the normal financial ecosystem. The latest developments in the Saudi legal setting by key players like the chair of CMA, minister for Commerce and Industry have also been highlighted including the deputy minister for Internal Trade. Not so much around Saudi’s future potential has been investigated showing how scanty the available information is. It ends by giving recommendations to improve the financial situation (Islamic) in Saudi Arabia by having a conformity standard.
According to (Zulkifli, H, 2013) Saudi Arabian banks have a strong capital base and experience good liquidity and have not been affected by the shock in the price of oil recently. The banking sector is highly competitive with the very tremendous increase in innovative ideas such as the emerging FinTech sector. The 24 banks operating in the Saudi Arabian market are posing stiff competition and so each one of them must fight for the available opportunities. Foreign banks have heightened completion because the local banks have to redraw their strategies to match international standards. The fact that the mode of capitalization of these banks is similar, including the clients they are dealing with, it is a problem identifying the exact competitors within the business environment. The study aims at revealing the state of the business atmosphere, showing both local and foreign competitors within the market. This has helped the banks strategize accordingly to the status of their competitors. Most of the information supporting the arguments in the paper are from respondents sampled across ten banks. Additionally, the banks have been identified based on capitalization within the Dammam region.
Research by (Ayub M, 2015) has shown high prospects for the Saudi Arabian Islamic finance market and has expressed strengths of the sector that will make Saudi hold a strong position globally. This is mainly driven by the mass psychology of people having a presence in shariah-compliant services over the conventional banking services and products. The research has shown that Islamic finance has gone up 80% of the total loans offered, which is a considerable improvement compared to recent past years. This shows the high momentum of the Islamic finance sector which has been propelled greatly by the shift, despite fluctuations in oil prices and the general economic situation due to Covid – 19 effects. Government policies like the Sukuk debt issuance program are also helping the sector to grow. Moreover, the growth of the capital market and the flexibility introduced to make the system a little lenient have played a role in boosting the finance sector in the Saudi Arabian kingdom. In the report, a senior analyst from an agency expresses that the set regulations governing Islamic finance that has allowed issuing of Sukuk have been crucial in promoting the growth of the finance sector
A look into the National Bank of Saudi Arabia
The Saudi National Bank (SNB) is the largest financial institution in Saudi Arabia and one of the respected market giants in the Gulf. The banks’ position is very critical as it supports and shapes the economic outlook of Saudi Arabia by ensuring that the banking sector of the local level strives to achieve its Vision 2030 mission. Its key objectives are aimed at setting the pace for the country’s vision 2030. The bank, because of its financial muscles, also plays a role in helping the kingdom secure mega businesses and enterprises that will be of great benefit to the locals.
SNB foresees to be a reliable and outstanding banking provider that will cover both the regional and local aspirations of the banks. It strives to be on the lead on revenue matters and profit, to the top when it comes to customer care services, and be the most reliable digital bank lender. Besides, its desire to be the most preferred Shariah-compliant in the world would make it outshine other banks. The effort to realize this vision has been evident by the impressive performance the bank has recorded in recent years.
SNB intends to use its strong financial position to give clients top-notch services and products which are unmatched within the Islamic finance market. SNB has balanced transactions recording profits, a good model of business, and a much more admirable status in the economic market These factors boost the bank’s ability in dominating both the local and regional markets and in facilitating trade and transactions internally within the country and in the Gulf.
The high-tech digital solutions delivered by SNB its local position via growth of residential finance while improving MSME growth to see it become stable in lending as a trusted business partner for high-end companies in Saudi Arabia. Its willingness to merge and support institutions in the region’s businesses and projects while complying with Shariah would see it grow tremendously to be the most preferred service provider. It is well known that SNB beat all other banks in terms of treasury and Capital market. The merger by the latter company has formed the largest and well-known trusted bank in the capital of Saudi. Having been ranked the top in the Middle East, countries like South Asia offered their support to ensure that it stoops higher both in the regional and international market.
SNB’s commitment to supporting Saudization has created several opportunities for the young population and has achieved record rates of Saudization, by ensuring that the top leadership is mainly Saudi nationals. Additionally, SNB offers support and attention to female empowerment and has given them big opportunities in being part of taking charge of great seats in the Bank leadership. Such a mighty task is an important corporate culture of SNB and the business culture at large. SNB’s main task mainly strives in empowering people, non-profit companies, and involvement in any community services.
Foundation of the Saudi National Bank
SNB came into existence when the NCB and Samba Financial Group merged. NCB has it has always been known, was the first bank to be licensed and offer its services to the people of Saudi way back in 1953. The Bank put forth its Shariah Board in the year 1999 after which in 1997 it served to be a merged stock company. However, the Saudi Government at some point in 1999 possessed a majority of the Bank’s shares. The remaining shares were then taken by investors of Saudi. It was not long before 2014 that the NCB’s real public offering became a turning point of a new chapter of the bank’s history.
Over the years, the Bank has grown tremendously and developed in all spheres of business. This has reflected the Kingdom’s desire to be part of the modern global business change of constant improvement. Currently, SNB is uncomparable as it boasts of over 7.4 million customers that are served by the bank’s admirable services. Moreover, the unique and innovative solutions have taken technology to a higher notch of meeting the Shariah needs of desirable workflow and identities.
Samba Financial Group is a well-known financial company that tops the country’s market. In late 1955 it was able to put up a branch of its own that was named Citibank. After which, in the year 1980, a Royal law was set requiring Citibank to be Saudi American Bank the Saudi’s being the majority shareholders. However, in the year 1999, Samba joined the United Saudi Bank and grew to be the biggest financial institution known in the Middle East. After all these developments and transitioning, Samba was officially and fully owned by the local management that later renamed it Samba Financial Group.
The Saudi National Bank provides commercial banking services. The Bank offers current, savings, time, and other deposit accounts, auto leases, home financing, corporate loans, currency exchange, money transfer, asset management, share brokerage, initial public offering subscription, and private banking services. Saudi National Bank serves customers in Saudi Arabia. (According to Bloomberg).
Best Corporate and Investment Bank – Saudi Arabia by Asiamoney Middle East’s Best Bank Awards 2021, Best Online Cash Management Services – Saudi Arabia by Global Finance World’s Best Digital Banks Awards 2021, Best Corporate/Institutional Digital Bank – Saudi Arabia by Global Finance World’s Best Digital Banks Awards 2021, Best Trade Finance Services – Saudi Arabia by Global Finance World’s Best Digital Banks Awards 2021, Best Online Portal – Saudi Arabia by Global Finance World’s Best Digital Banks Awards 2021, Best Mobile Banking App – Saudi Arabia by Global Finance World’s Best Digital Banks Awards 2021.
Saudi’s world-class products of Shariah were developed and put into place by the Bank’s Shariah Supervisory Board. Considering this is a law-abiding group, its products are meant to meet the high standards of Shariah laws to enable the customers to be satisfied with their products and services. Additionally, the Shariah Board takes the initiative of organizing meetings where customers engage with the board members to discuss and take up their questions and concerns. This way, it creates transparency and brings awareness on clarification of the items and services offered by the Bank. The Board’s membership success has been attributed to the contribution of its bright and prominent Shariah scholars who are well endowed with skill and knowledge of the current Islamic Finance.
SNB and its Shariah Group entail a bunch of diverse and witty personnel who are well trained on matters of Islamic banking. The group plays a very unique and important role in research on issues about Islamic business to ensure that the bank remains relevant following religion. Besides, the board is available for any questions and can provide Shariah advice in coming up with Islamic items and purchases. It has indeed played a vital role in ensuring that the bank progresses well while maintaining the Islamic core values and principles.
The Shariah Group offer services in the following areas:
First, it takes the role of managing the SNB’s good cohesion with the Shariah Board while giving information and feedback about the Shariah Board issues, suggestions, and views about the units of SNB. Also, it offers a lending hand to the diverse SNB businesses to create Shariah-abiding products and items as intended by the clients. The Shariah Group also offers assistance to the executive team for the creation of Islamic banking across the group. It makes it clear that all auditing is done per the Shariah laws, and that the banks are afloat in the banking market as a leading institution. Lastly, it has taken the role of creating awareness in all parts of the country in keeping people alert in the availability of its products and services.
Future Prospects
In its constant role of championing support of development, SNB published the themes of its intended urge to partner with Future Investment Initiative Institute (FII) for a year. This was to be included in the fifth edition of the Future Investment Initiative Forum that was on October 26th to 28th this current year in Riyadh. Its theme was named “Invest in Humanity.” The forum was to tackle diverse topics including the study of robots, education, the health system, and many more chances that would be of benefit to the human being.
According to Mr. Ammar Abdul Wahid Al-Khudairy, SNB Chairman, “Saudi’s National Bank’s strategic merge with FII events stood for the Bank’s confidentiality and support to the Saudi vision 2030. He believed the programs and the initiatives of 2030 would be of great benefit to the banking sector for the near future. The partnership was so necessary for reflecting the goodness of such events on the diverse economic sectors in striving to achieve sustainable growth. Following its long-term insights, the merging of the two companies would be a great step to the financial and banking leadership of economic models.
Future Concerns
According to (Zulkifli, H, 2013), Vision 2030 has a lot in store for Saudi’s economy and the Financial unit would be of great benefit in this. Through the sector, private entities would be facilitated keeping in mind the Small and Middle-sized enterprises’ finances. Thus, the bank will have acquired new roles other than just being distributive. This article will bring out how Saudi Banking has tremendously changed over the five years and how the current composition is coping. It is vital to admit that commercial banks are growing to be great intermediaries in all spheres of the economy. Therefore, the new banking strategies need new approaches and since Saudi companies and a few others fit in this category, they do not need international aid. The local banking system o Saudi is very important for the realization of vision 2030
It now explains how the recent changes have happened, like the merging of Alawwal and Saudi British Bank that happened in 2028. Also, the merging of National Commercial Bank and Samba in 2020 and the introduction of two digital licenses in 2021. All these merges portrayed some form of dynamism that was undesirable for Saudi banking. The county’s commercial banks have changed their tactics and broadened their initiatives from simple infrastructure to include mortgages and the financing of SMEs. To ensure banks get support, the government has stepped in offering financial support. This move has given banks great profitability. However, it is necessary not to be trickled by eye-catching brochures and price tags as many challenges still facing the banks since time immemorial are still in place.

Saudi Arabia and Fintech
In the area of FinTech, we realize that Saudi Arabia is endowed with the much-needed recipe for the global technology position. Saudi Arabia is considered a high-income country with a huge economy, solid financial system, with high internet and mobile penetration rates. Entrepreneurs in the Middle East often look for scaling up in Saudi Arabia after making some local success because it is one of the largest economies in the world and the largest economy in the region. Furthermore, being a tech-savvy society with many people below 35 years of age makes it so easy to adapt and delve into the technology faster unlike other places in the globe. The ” FinTech Saudi” also created by Saudi Arabia acted as a catalyst to create the FinTech contribution. According to, Saudi National Bank is the Kingdom of Saudi Arabia’s largest financial institution, with over SAR 896 billion ($239 billion) 1 in total assets, SAR 127 billion ($34 billion) 1 in shareholders’ equity. The Bank gets much-needed liquidity and capital to enable it to be a stable place for inflow and outflow of capital that aims to realize the vision 2030.
In conclusion, according to Islamic Research and Training Institute, Islamic Development Bank, 2020), without a doubt, the future of Islamic Finance in Saudi is promising due to the country’s current stand in the world Islamic Financial position. With its diverse resources, youthful and innovative population, two holy mosques and an upgraded financial system, and tough leadership, the Kingdom is all endowed with the relevant skills and attributes to enter the immense opportunity that Islamic finance can contribute to the economic and social prosperity. It would however not be an easy task, but it would be so fulfilling and worth working for.

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