Saudi Islamic Financing Increases to 47.2 Billion in 2023 Q2
Islamic financing is gaining more popularity in Saudi Arabia. Data issued by the Central Bank of Saudi Arabia today, Thursday, showed that the value of financing contracts compatible with the provisions and principles of Sharia law in Saudi Arabia increased by 2.3% by the end of the second quarter of this year,2023, compared to the first quarter of 2023, to record more than 47 billion riyals.
What is Islamic Financing?
Islamic financing is financial transactions that follow Islamic principles which prohibit paying interest, gambling and speculative behavior. Mudarabah (profit-sharing), musharakah (partnership) and sukuk (Islamic bonds) are some of the examples of Islamic finance.
Islamic Financing Contracts on the Rise
The data showed that the value of Islamic financing contracts in Saudi Arabia rose to 2.079 trillion riyals at the end of the second quarter of 2023, compared to 2.032 trillion riyals at the end of the first quarter of the same year. Thus, the value of Islam-compliant financing in the second quarter amounts to about 47.25 billion riyals.
During the year 2022, the value of Islam-compatible contracts increased by 14.68% on an annual basis to reach 1.976 trillion riyals, compared to 1.724 trillion riyals at the end of 2021, rising during that period by 253.14 billion riyals.
The volume of financing compatible with Islamic law in the Kingdom during the first half of 2023 amounted to about 102.72 billion riyals, as the total financing increased by 5.2% compared to its value at the end of the year 2022.
Forms of Increasing Types of Islamic Financing
The majority of Islamic financing in the Kingdom in the second quarter of 2023 was under securitization financing at 21.77 billion riyals, followed by Murabaha financing at 20.92 billion riyals, and financial leasing at 4.17 billion riyals.
Murabaha financing accounted for 52.77% of Islam-compatible financing contracts at the end of 2023 second quarter, amounting to 1.097 trillion riyals. On an annual basis, it recorded a 13.3% increase, which amounted to 128.8 billion riyals. At the end of the same quarter last year, it amounted to 968.32 billion riyals.
Securitization financing came in second place for Islam-compatible financing contracts in the Kingdom (representing 36.28%). Its value reached 754.42 billion riyals at the end of the second quarter of 2023, recording an increase of 8.9%, equivalent to 61.6 billion riyals, compared to its value at the end of the same quarter of last year, which amounted to 692.82 billion riyals.
Financial lease came in third place with a value of 191.54 billion riyals, compared to 177.7 billion riyals at the end of the second quarter of 2022, increasing by about 7.8% on an annual basis.
The value of Mudaraba financing amounted to 1.69 billion riyals, and partnership financing amounted to 1.55 billion riyals, while the value of other financing that falls under the classification of financing contracts compatible with the provisions and principles of Islam amounted to 32.89 billion riyals at the end of the second quarter of 2023, including credit cards and other financing forms compatible with the provisions and principles of Islam.
Also on an annual basis, the value of financing contracts compatible with the provisions and principles of Sharia in the Kingdom at the end of the second quarter of 2023 increased by 11.1%, amounting to 207.54 billion riyals, compared to the total volume of financing at the end of the second quarter of 2022, which recorded 1.871 trillion riyals at that time.
Deposits and Assets
The total Sharia-compliant deposits in Saudi Arabia reached 1.933 trillion riyals at the end of the second quarter of 2023, recording the highest level ever, compared to 1.913 trillion riyals at the end of the same quarter of 2022. It rose by 20.18 billion riyals equivalent to 1.06% on an annual basis.
At the level of Islamic Sharia-compliant assets, they jumped at the end of the second quarter of 2023 to the highest historical level, recording 2.864 trillion riyals, compared to 2.639 trillion riyals at the end of the same quarter of 2022, increasing by 225.23 billion riyals, or 8.5% on an annual basis.
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