Rise of the digital Islamic economy
The digital Islamic economy is set double to USD 30 billion by 2018 on the back on rising consumer spending on sharia-compliant services in the Middle East, dispelling the notion that Islam is incompatible with the modern world.
Core Islamic economy sectors such as halal food, halal travel, fashion, Islamic finance, media, recreation and culture, pharmaceuticals and cosmetics, are growing at double-digit rates.
UK-based management consultancy Deloitte Touche Tohmatsu expects the various digital variations of these segments to grow in tandem.
“Muslim consumer spend on digital Islamic services in the region, driven by already high digital media consumption, will likely expand by as much as 25 to 30 percent across most areas of the Islamic economy in 2015 and beyond,” it said in a report focused on technology, media and telecom outlook in the Arab World.
While Bahrain remains an Islamic finance champion, Dubai has designs to become an Islamic finance hub that should fuel the digital side of the industry.
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Apart from becoming the centre of Islamic finance, the emirate aims to become a magnet for the halal products industry, become a family-friendly Islamic tourism hub and attract entrepreneurs to create platforms that address bespoke Muslim requirements such as Islamic fashion, design, and the arts and education.
While Dubai ’s efforts could be a catalyst for the digital Islamic economy, other factors are also expected to fuel growth.
The region boasts more than 100 million users, and regional Internet penetration stands at 35-40%, with more than 100% for mobile phones. More notably, smartphone penetration of about 20-30% and strong broadband infrastructures in parts of the region means there are strong digital foundations to build on.
Deloitte notes that Islamic digital services over the past two years have seen new developments such as an online Islamic lifestyle magazines, modest fashion blogs and Islamic lifestyle app solutions.
Deloitte said its ‘Digital Services Maturity Cycle’ assessment, developed to assess the relative maturity and prospects of digital services in the Middle East over the next three to five years, identified a number of services — hobbies, healthcare, education and religion (i.e. Islamic services) — as unique emerging niches for the Arab world.
Other innovations like smart mosques – which enable worshippers to interact with the mosque using mobile devices and quick response codes — are promising although in early stages of development.
Islamic economy education, mainly focused on Islamic finance courses, has also been growing more than 20% growth online over the past five years, of which 30% are estimated to be in the UAE.
Global Islamic art sales, mainly from the region, have also expanded on average at 22 percent per annum over the past decade from 2001 to 2011.
“With such strong and consistent growth, Deloitte predicts online Muslim consumer spend on pharma & cosmetics, Islamic economy education and Islamic art & design to cross USD 552 million, USD 7.8 million and USD 1.6 million in 2017 respectively,” the report said.
Opportunities are not limited to only consumer e-commerce space, but extend to business-to-business such as ‘farm-to-fork’ tracking in the halal food industry.
“With so many untapped needs also in the B2B space, we believe that the Digital Islamic Economy in its entirety and the opportunities therein, beyond consumer goods and B2C services, is actually far larger,” Deloitte said.
“With limited funds in the region specifically targeting the Islamic needs sector; the digital Islamic economy largely remains untapped.”
Deloitte said they had yet to see interest from global players such as Google and Yahoo! in the digital Islamic services space.
The impetus will likely come from Islamic finance which already boasts close to USD 743 billion in commercial Islamic banking assets. Offline growth is trickling into the digital world, with sharia-compliant crowd-funding and online incubators such as Yomken and Shekra in Egypt seen as fuelling the industry’s growth.
Islamic Internet banking, takaful (Islamic insurance) are all segments that are expected to get a boost, as the region’s Internet-savvy youth seek new financial services.
However, the segment faces significant funding challenges. Despite strong interest in technology, media and telecommunications there are few venture capital funds in the region focused on digital Islamic services, implying a huge gap in this space that needs to be filled.
The example of award-winning imhalal . com – a search engine inspired by Google – shut down due to lack of funding, even though it attracted around 10 million visits and 70 million search queries.
“There is something structurally wrong with the investment climate in the MENASA region. Tech startups are completely ignored,” imhilal.com developers said on their webpage. “Technological advancement is almost non-existing in the Middle East because nobody supports the innovators building all kinds of technologies for various industries.”
Regional investors, incubators, NGOs and government authorities need to come together to support entrepreneurs and digital Islamic services innovations.
© Zawya 2015