Qatar has a vibrant and multifaceted Islamic financial services sector capable of providing a full suite of sharia-compliant products. The country is a major regional and global player in Islamic finance, home to three of the world’s top-10 Islamic banks by asset size. The sector has continued to grow despite the effect of the Covid-19 pandemic and recent regional and global instability.
Now, with Qatar’s economy growing, hydrocarbons exports expanding and the population increasing, Islamic finance is capitalising on new growth opportunities and adopting innovative practices. Indeed, recent government strategies for the financial sector and national development target Islamic finance products and services specifically. This robust government backing for the sector aims to drive advancement in financial technology (fintech), takaful (Islamic insurance) and green sukuk (Islamic bonds) in 2024.
Sector Oversight
The main regulatory and oversight body for the financial sector – both conventional and takaful – is the Qatar Central Bank (QCB). Based in Doha, the QCB consists of a number of departments within the Supervision Division, which has banking, insurance and other financial institution and fintech departments under its umbrella.
The QCB coordinates with international financial supervisory institutions, including the Basel Committee on Banking Supervision (BCBS), the Islamic Financial Services Board (IFSB) and the Accounting and Auditing Organisation for Islamic Financial Institutions.
In addition, Qatar is home to the onshore Qatar Financial Centre (QFC), and is regulated by the QFC Regulatory Authority (QFCRA). Islamic banks registered there are subject to the Islamic Banking Business Prudential Rules 2015 (IBANK) framework, with amended IBANK rules expected in July 2024 to include the IFSB credit risk and BCBS counterparty credit risk regulations.
Meanwhile, Islamic financial services companies listed on the Qatar Stock Exchange (QSE) are also subject to the regulatory supervision of the Qatar Financial Markets Authority (QFMA), which, alongside the QFCRA, reports to the QCB. The QSE has its own sharia-compliant index, the Qatar Exchange (QE) Al Rayan Islamic Index, with banks and financial services companies making up 32.4% of the index’s weight in October 2023. To list on the index, companies must comply with sharia standards set by the QSE and the QFMA. In turn, each Islamic financial institution has its own sharia board or committee, tasked with ensuring it has sharia-compliant products and services. The QCB has continued to make efforts to bring all of these boards and committees into alignment, a process that is expected to continue in 2024.
Sector Structure
In 2022 the bulk of the sector’s assets in Qatar – 87.3% – were in its banks, according to Bait Al Mashura Finance Consultations, a company that specialises in Islamic finance. The next largest segment was sukuk, with 11.3%; takaful accounted for 0.8%; finance and investment companies, 0.5%; and investment funds, 0.1%. Altogether, the Islamic finance sector accounted for some QR635bn ($174.3bn) in assets that year, showing 6.5% growth over the previous two years.
Qatar does not allow Islamic windows in conventional banks, as sharia-compliant banking must be conducted via fully fledged Islamic banks. This has led to the development of some powerful players in Islamic banking. In 2022 the two largest were Qatar Islamic Bank (QIB) and Masraf Al Rayan, which were the fifth- and sixth-largest Islamic banks worldwide by asset size that year. Both QIB and Masraf Al Rayan are listed on the QSE, which recorded market capitalisation of QR43.1bn ($11.8bn) and QR23.5bn ($6.5bn), respectively, in April 2024.
Other Islamic banks listed included Dukhan Bank, with a market capitalisation of QR20.2bn ($5.5bn), and Qatar International Islamic Bank (QIIB), with a market capitalisation of QR15.8bn ($4.3bn). Together, the four made up 38.5% of the banks and financial services board’s market capitalisation in April 2024. All four banks are also listed on the QE Al Rayan Islamic Index.
Asset Sizes
In terms of assets, QIB reported QR189.2bn ($51.9bn) at end-2023, up from QR184bn ($50.5bn) in 2022. Net profit grew from QR4bn ($1.1bn) in 2022 to QR4.3bn ($1.2bn) a year later.
Masraf Al Rayan reported total assets of QR164.2bn ($45.1bn) at the end of 2023, down from 2022 at QR167.5bn ($46bn). Net profit increased from QR1.4bn ($384.3m) to QR1.5bn ($411.7m).
Dukhan Bank was created by a merger in 2019 between Barwa Bank and International Bank of Qatar. Dukhan Bank reported total assets of QR114.4bn ($31.4bn) at the end of 2023, an increase from end-2022 at QR106.3bn ($29.2bn), while net profit rose from QR1.25bn ($343.1m) to QR1.3bn ($356.8m).
QIIB reported total assets of QR61.6bn ($16.9bn) in 2023, up from QR56.4bn ($15.5bn) at the end of 2022, while net profit increased from QR1.1bn ($301.9m) at end-2022 to QR1.2bn ($329.4m) at end-2023.
A fifth entity, Lesha Bank, is also listed on the QSE and is a sharia-compliant investment bank. Formerly known as Qatar First Bank, its operations are mainly outside of Qatar, in US real estate. The bank had total assets of QR6.3bn ($1.7bn) at the end of 2023, up from QR5.3bn ($1.5bn) at end-2022, with net profit up 14.2%, from QR84.5m ($23.2m) to QR96.5m ($26.5m). In addition, two Islamic banks operate in the QFC – QI nvest Bank and Abu Dhabi Islamic Bank, with the latter operating via a branch established at the centre.
In terms of product types, the most popular modes of finance among Qatar’s Islamic banks are debt-based murabaha (cost-plus financing) and musawama ( bargaining sale, or a commodity trading arrangement similar to murabaha, but with an unknown price of the underlying asset). The two products accounted for 74.2% of total bank finance volume in 2022, with a further 22.8% in ijara and ijara muntahia bittamleek (both are lease financing forms) and 0.3% in istisna’a (deferred delivery, or a sharia-compliant method to finance the construction or manufacture of assets). Participatory finance formulae accounted for 1.5% of the total, with 1.3% in musharaka (joint venture) and 0.2% in mudaraba (profit sharing). Other modes of finance made up the remaining 1.2%.
Sukuk
The second-largest pillar of Qatar’s Islamic finance sector, by some margin, is its sukuk segment. This features issuances by both government and non-government actors, with the former resuming its programme of sukuk sales in 2021 after a pause in 2020. Banks and Islamic finance houses have also been major issuers of sukuk, with the former’s investment arms also arranging a number of high-profile sukuk issuances in Qatar and abroad.
In 2021, for example, QR7.6bn ($2.1bn) in sukuk was issued by the government, while QR2.7bn ($741.1m) was issued by Islamic banks. In 2022, however, only the QCB made sukuk issuances, totalling QR5.4bn ($1.5bn) over five tranches. The QCB has indeed been an active issuer of sukuk, with QR32.8bn ($9bn) issued during the 2018-22 period. Among Islamic banks, the most active over the 2017-21 period was QIB, which issued a total of QR9.9bn ($2.7bn), followed by Masraf Al Rayan with QR6.4bn ($1.8bn), QIIB with QR4.6bn ($1.3bn), and Dukhan Bank with QR1.8bn ($494m). Overall, some 31.9% of government sukuk and bonds over the period were issued in Qatari riyals.
The QSE lists three takaful companies – Qatar Islamic Insurance Group (QIIG), Damaan Islamic Insurance, known as Beema, and Al Khaleej Takaful Insurance, making up 20% of the total market capitalisation on the QSE’s insurance board. QIIG is the largest, with a market capitalisation of QR1.2bn ($329.4m) in April 2024, and reported total assets of QR1.33bn ($365m) at the end of 2023, up from QR1.31bn ($359.6m) the previous year. Beema, meanwhile, had a market capitalisation of QR753m ($206.7m) in April 2024. Total assets were QR1.4bn ($384.3m) in 2023, down from QR1.8bn ($494m) the previous year. Beema was listed on the QSE in 2023 when it also started international underwriting on a facultative basis. Al Khaleej Takaful had a market capitalisation of QR664m ($182.2m) in April 2024 and total assets of QR1bn ($274.5m) at the end of 2023, up from QR987.8m ($271.1m) at end-2022.
All three takaful companies reported annual profit increases in 2023 – QIIG’s increased from QR101.3m ($27.8m) at end-2022 to QR142.8m ($39.2m) in 2023, while Beema’s net profit rose 24.2%, from QR56.6m ($15.5m) to QR70.3m ($19.3m), and Al Khaleej Takaful increased its net profit from QR56.5m ($15.5m) to QR64.6m ($17.7m). Each of the three also saw increases in gross contributions (see Insurance chapter).
Other takaful companies operating in Qatar include General Takaful, which was established in 2008 as part of the Qatar General Insurance and Reinsurance Group, the latter, listed on the QSE with a market capitalisation of QR967m ($265.4m) in February 2024. Doha Takaful, meanwhile, was set up in 2006 as Doha Insurance Company’s sharia-compliant arm. In 2018 it became a limited liability company fully owned by Doha Insurance Group, the latter of which is listed on the QSE and had a market capitalisation of QR1.2bn ($329.4m) in April 2024.
Within the QFC, the four takaful companies operating in 2024 were Medgulf Takaful, T’azur, Takaful International and Seib Insurance and Reinsurance.
Investment
In terms of Islamic finance companies, three of these are registered with the QCB – Al Jazeera Finance (AJF), also known as Tamweel; First Finance Company (FFC); and Qatar Finance House (QFH). AJF is 30% owned by QIB and 20% by QNB, Qatar’s largest conventional bank. Both AJF and FFC saw profit and revenue growth in 2022, with QFH showing a decline. Assets have been in decline since 2018 for the Islamic finance companies segment, although 2022 did show a 2% increase in revenue – countering a 2018-22 compound annual growth rate (CAGR) trend of -2.8%.
Qatar’s two non-QFC Islamic investment companies – The First Investor (TFI) and Investment House – had mixed performance over the same period, with their overall asset base increasing by 1.3% in 2022, although CAGR from 2018-22 was -2.3%. Compound revenue growth over the same period, however, was robust, at 33%. The QFC, meanwhile, is home to Al Rayan Investment, a wholly owned subsidiary of Masraf Al Rayan.
A final branch of the Islamic finance sector is that of Islamic investment funds. Five of these were operating as of the end of 2022 – Al Bait Al Mali, Al Rayan GCC Fund (Q), Al Rayan GCC Fund (A), TFI Securities Fund and Al Rayan Qatar exchange-traded fund (ETF). Each of these funds is denominated in Qatari riyals, with the exception of Al Rayan GCC Fund (A) which is US-dollar denominated. In 2022 the total amount in these funds was QR910.1m ($249.8m), down 0.9% from 2021, but saw a CAGR of 0.2% as a whole in the 2018-22 period.
Plans & Programmes
Qatar’s overall development has been following the strategic framework of Qatar National Vision 2030 (QNV) since its launch in 2008. QNV seeks to diversify the economy and expand the role of the private sector, among other social, environmental and economic goals. In the shorter term, the country has also been following a series of national development strategies, with the most recent of these being the Third National Development Strategy (NDS-3) for 2024-30. The NDS-3 has seven pillars, with sustainable economic growth as one of these. Within this pillar, a number of diversification clusters are defined, with the financial services sector denoted in the NDS-3 as an enabling cluster – a sector that impacts all others.
Within this, several areas are specifically mentioned. These include the establishment of Qatar as an insurance technology (insurtech) centre, while a series of reforms, incentive programmes and awareness campaigns will also be undertaken to increase insurance market penetration. A particular focus will be given to capital markets development, as well as support for the financing of small and medium-sized enterprises (SMEs). This assistance will include regulatory changes and the promotion of banking and fintech among companies outside of the banking mainstream.
Furthermore, the financial sector has its own development programme, the Third Financial Sector Strategic Plan, launched by the QCB in November 2023 and which runs from 2024-30. The plan has four strategic pillars – banking, insurance, digital financial ecosystem and capital markets. Islamic finance is included in all of these as a cross-cutting theme, with the plan aiming to give the segment clear direction, support the development of innovative Islamic products, and promote and raise awareness of Islamic financial services.
In banking, this translates into a range of initiatives impacting conventional and Islamic lenders, ranging from further digitisation to regulatory reforms, SME financing, capacity building and security management. For the sharia-compliant segment, specific policies include support for providing a fuller range of Islamic products, including more Islamic investment options.
For takaful, a similar range of regulatory, digital and awareness-building initiatives are proposed, with the addition of establishing Qatar as an insurtech centre to enable the digital leapfrogging of the sector as a whole to more developed market levels of penetration and density. Takaful and reinsurance are mentioned as key priority segments. Boosting the uptake of takaful products is key to expanding the sector’s overall offering, both in the general and life, or family subsectors.
As for the digital finance ecosystem, digital Islamic finance is a niche area targeted for support. This will be enabled by a range of reforms to the regulatory, human and technical infrastructure, including establishment of a fintech talent centre of excellence and a sandbox for incubating fintech start-ups, with Islamic fintech one of the areas to be included. The Third Financial Sector Strategic Plan also aims to attract fintech companies and talent to Qatar from abroad.
The final pillar, capital markets, targets increased liquidity and depth, with an expansion of the fixed-income and asset management markets assisted by rulebook and regulatory development. In line with increasing depth, is a specific aim to increase the market’s offering of Islamic financial products.
In 2024 there will be increased efforts by the regulatory authorities towards producing new frameworks for the financial sector’s development. At the same time, opportunities for Islamic finance are being heightened, with an eye on both local and foreign investors.
Performance
The sector has encountered and addressed various challenges in recent years, including the pandemic, volatile energy prices, global conflicts and higher interest rates. In 2020 Qatar’s Islamic banks experienced an 8.4% uptick in assets and an 8.7% rise in deposits, while revenue grew by 3.4%; however, profit declined by 2.6% due to increased provisioning for expected credit losses amid lockdowns. Takaful companies saw a 4.6% decline in total assets, but insurance surpluses jumped as claims decreased during closures. Islamic finance companies also saw a drop in assets and funds granted, by 12% and 11.3%, respectively.
In 2021 as economic activity returned and hydrocarbons revenue rebounded, Islamic banks saw assets, deposits, profit and financing increase by 12.6%, 17.5%, 10.7% and 8.7%, respectively. In takaful, assets and contributions both increased, by 4.4% and 7.4%, respectively although surpluses fell, as normal business – and claims – resumed. In 2020 surpluses reached QR149.2m ($41m), while in 2021 they totalled QR113m ($31m). Financing provided by Islamic finance companies, however, shrank by 8%, as did their assets and revenue, by 3.6% and 9.2%, respectively.
In 2022 recovery continued as Islamic banking assets climbed 7.3% from 2021, to QR544.3bn ($149.4bn), while deposits grew by 1.6%, reaching QR317.8bn ($87.2bn). Profit, at QR7.7bn ($2.1bn), was up by 2.8%. Takaful assets rose by 11.9% to around QR5bn ($1.4bn), while insurance contributions increased by 9.3% to reach QR1.5bn ($411.7m). Islamic finance companies experienced a 1.9% decrease in both assets and financing provided, alongside a 2% increase in revenue. Conversely, Islamic investment companies witnessed a 1.3% rise in combined assets, while assets of Islamic investment funds slightly declined by 0.9%.
“Overall, the Qatari takaful market is surpassing regional benchmarks and experiencing robust growth in premium volumes and profitability,” Nasser Al Misnad, CEO of Beema, told OBG. Indeed, the country’s takaful companies are among the most profitable in the Gulf, with an average combined ratio of less than 80% in 2022, showcasing efficient underwriting practices.
Despite Qatar’s minimal funding requirements for sukuk, the market remained resilient, supported by the robust economy, budget surpluses, and diversification objectives, exemplified by QIB’s $500m, five-year sukuk in November 2023, and the QCB’s issuance of $1.3bn in the first half of that year. This trend continued into 2024 with the QCB launching a QR2.5bn ($686.2m), five-part issuance in February.
Outlook
Future economic expansion in Qatar – the IMF forecasts 2.2% real GDP growth for 2024, accelerating to 3.7% in 2025 – will provide fertile ground for further expansion. Qatar’s sector development plans bode well for Islamic financial services, which will directly benefit from QCB and other government-led efforts to provide advanced digital infrastructure, incentives to innovate and awareness campaigns to boost public participation in areas such as takaful.
As economic growth continues, the need for sukuk issuances for budget-balancing reasons will, however, continue to shrink. Yet, with the government determined to diversify, market-making initiatives will also continue to see sukuk offered, helping to both widen and deepen the fixed-income market. The prospects, therefore, look bright across the wide spectrum of Islamic financial services available within the country.
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