Islamic banking, guided by the principles of Sharia law, often provides advantages over traditional wholesale banking, according to a considerable number of non-Gulf C-suite executives and senior managers from Fortune Global 500 and Forbes Global 2000 companies who participated in an in-depth study on the reputations of wholesale banks operating in the Gulf region.
My research participants noted that Islamic banking practices and instruments foster shared risk-taking, promoting a ‘we're all in this together’-mentality between bank and client. This encourages prudent financial decision-making, alignment of interests, and deeper engagement, mitigating the risk of financial instability caused by the excessive debt prevalent in traditional wholesale banking. Additionally, Islamic finance's emphasis on ethical investments, avoiding sectors like gambling or alcohol, appeals to many Western and Eastern executives with similar concerns. This focus on social responsibility is further reflected in the growing popularity of Islamic bonds. But there are more advantages, said my research participants. For example, asset-backed financing is common in Islamic wholesale banking, reducing speculative practices due to the straightforward links between financing and real/productive economic activity, for more details on this topic, see for example www.pieterklaasjagersma.com/leasing-and-marketing.
Thus, while most traditional Western and Eastern banks focus on debt and credit, Islamic banks prioritize partnerships and shared outcomes — a partnership-driven approach rather than a purely transaction-driven model. The focus on real assets and shared risk is particularly beneficial in volatile economic environments, which are a hallmark of our current economic era.
The emphasis on intense collaboration, risk/return-sharing, ethical investment, and financial stability makes Islamic wholesale banking increasingly attractive for businesses worldwide. As one CEO put it, Islamic banking is "a mature and competitive alternative to the transaction-driven, interest-based model of wholesale banking practices of Western and Eastern banks."
As global demand for sustainable and responsible banking grows, Islamic wholesale banking is poised to play a pivotal role in shaping a more contemporary financial system. This makes Islamic finance appealing to businesses and a compelling option for governments seeking innovative and principled long-term financial solutions.