Islamic Banking Growth in the GCC Is Outpacing the Technology Behind It
Islamic finance continued its strong expansion in 2024, but the systems supporting many banks are struggling to keep pace. Global Islamic finance assets rose to US$5.98 trillion in 2024, up 21% year-on-year, according to the ICD-LSEG Islamic Finance Development Report 2025. However, the industry’s rapid growth is exposing a widening gap between product demand and the digital infrastructure needed to deliver Sharia-compliant services efficiently.
The challenge is especially visible in the Gulf Cooperation Council (GCC), which holds around half of global Islamic finance assets. In the UAE, the sector is also growing alongside a broader shift toward digital payments, with only one in six purchases reportedly made in cash. Dubai’s cashless strategy aims for more than 90% of all transactions to be digital by 2026, raising customer expectations for fast, seamless and mobile-first banking experiences.
Legacy Core Systems Are Limiting Product Innovation
Despite rising demand, many Islamic banks still rely on legacy core banking systems built for conventional finance. That creates operational and compliance problems because Islamic products require specific contract logic and transaction sequencing.
For example, a Murabaha transaction must follow a precise order of offer, acceptance, purchase, sale and delivery. If system records show the purchase occurring before acceptance, the contract may be considered religiously invalid. Similarly, Ijara products require platforms to manage asset ownership, lease payments and final title transfer, while Wakala, Salam, Istisna and Takaful each involve distinct workflow requirements.
According to the article, generic banking systems were not designed for these structures. Banks often respond with manual workarounds, which increase costs, slow down product launches and can create the risk of Sharia board objections after deployment. In Islamic finance, the consequences of failure are not limited to regulatory issues; they can also affect the religious validity of a product and, by extension, customer trust.
Time-to-Market and Talent Constraints Add Pressure
The article also points to a growing product-innovation gap. Conventional banks have significantly shortened product development cycles over the last decade, while many Islamic banks still require long timelines to launch new offerings. This matters as the Islamic finance industry is forecast to grow from US$5.4 trillion to US$9.75 trillion by 2029.
New products such as mobile Hajj-saving wallets, Sharia-compliant buy now, pay later offerings, robo-advisers that screen out non-permissible sectors and digital Sukuk distribution are becoming increasingly important in a market expanding at double-digit rates.
At the same time, talent shortages are adding another layer of difficulty. The article notes that professionals with AAOIFI Shariah qualifications or dual regulatory licenses saw compensation increases of 18% to 25% across 2024 and 2025, while some senior Shariah governance roles remained open for 9 to 14 months. This scarcity means banks must find ways to embed Sharia expertise into technology and workflows rather than rely entirely on manual review.
Industry Analysis
The central issue highlighted by the report is not demand, but delivery. Islamic banking is expanding quickly, yet many institutions are constrained by technology architectures that were never built for the complexity of Sharia-compliant finance. For banks in the GCC, the competitive advantage may increasingly depend on whether they can modernise product orchestration without disrupting existing operations. Institutions that combine Sharia governance with more flexible digital infrastructure are likely to be better positioned to capture future growth in Islamic finance.
Technology Firms Position Orchestration as the Answer
The article cites Finshape as an example of a provider addressing these challenges through an orchestration layer above the core banking system. Its Agentic Digital Bank Operating System (ADBOS) uses AI agents to automate and coordinate banking processes end to end. The platform is designed to configure Sharia-compliant products such as Murabaha, Wakala, Salam and Takaful while allowing business teams to launch financing journeys in weeks rather than years.
Finshape CEO Neil Budd said the innovation layer has shifted away from the core banking system and argued that Islamic banks need the speed of digital-native competitors without compromising on compliance, ethics and governance. He added that maintaining sovereignty over the digital roadmap is key to achieving that balance.
As Islamic banking continues to expand, the article suggests that the institutions best placed to lead will be those that pair strong Sharia governance with modern, orchestration-first digital architecture.
