Form or substance: five reflections shaping Islamic finance

Explore how Islamic Finance is evolving – balancing tradition, innovation and purpose in an increasingly complex world.

28 July 2025

5 mins

Corporate & investment banking

This article has been adapted from an opinion piece featuring Khurram Hilal, CEO Group Islamic Banking. The full article can be viewed here.

Islamic Finance at a crossroads: five reflections shaping the industry’s future

As Islamic Finance surpasses USD 5 trillion in global assets, it finds itself at a defining moment. With five decades of growth behind it, the industry now faces fundamental questions about its direction, impact, and long-term value proposition.

In a recent opinion piece, Khurram Hilal, CEO of Group Islamic Banking at Standard Chartered, reflects on these issues. Drawing from over 25 years of experience across markets, Hilal offers a timely perspective on where Islamic Finance stands today- and where it must head next.

This article summarises five key themes from his piece, each reflecting a broader industry conversation around purpose, innovation, and relevance.

1. Form vs function: The Islamic window debate

A recurring point of debate is whether Islamic banking is best delivered through standalone Islamic banks or “windows” within conventional financial institutions.

While some stakeholders question whether windows compromise Shariah integrity, Hilal notes that Islamic windows have played a vital role in expanding market access, particularly in jurisdictions where full-scale Islamic banks may not be commercially viable.

The critical factor, he argues, is governance. Strong oversight, segregation of funds, and cultural alignment can enable Islamic windows to serve clients with the same rigour as fully-fledged Islamic institutions.

2. Risk-sharing vs debt-based structures

Islamic Finance was conceived as a system built on ethical partnership and risk-sharing. Yet, many of today’s mainstream products, such as Murabaha and Ijara, resemble conventional, debt-based structures.

Hilal acknowledges the concerns of those who view this as a departure from Islamic Finance’s original vision. However, he also highlights the regulatory and commercial realities that have made equity-based products like Mudarabah and Musharakah more challenging to scale.

He calls for a gradual rebalancing, where debt-based structures remain relevant, but risk-sharing models are more actively integrated into financial portfolios.

3. Tawarruq: necessary tool or temporary solution?

Tawarruq – a structure used to create liquidity while maintaining Shariah compliance – remains one of the most debated instruments in the industry. Critics argue that it prioritises form over substance, resembling conventional finance too closely.

Hilal acknowledges Tawarruq’s utility in bridging market gaps but believes its usage should be temporary and transitional. The long-term goal must be to replace it with more authentic, economically meaningful solutions.

4. Innovation beyond replication in product development

Much of Islamic Finance’s growth has come through the replication of conventional products within a Shariah-compliant framework. This approach helped the industry gain early traction, but it also limited deeper innovation.

Hilal notes that this trend is beginning to shift, with growing interest in Islamic fintech, ESG-aligned products, and Islamic social finance instruments such as zakat and waqf. These areas present an opportunity for Islamic Finance to lead from its own value system, rather than imitate others.

5. Bridging the Inclusion gap

A defining feature of Islamic Finance is its commitment to financial inclusion and socio-economic upliftment. Yet, much of the industry today is focused on corporate and sovereign finance, leaving a gap in SME and microfinance segments.

Hilal argues that this gap can now be addressed through digital banking, mobile finance, and Islamic social finance tools. These innovations, coupled with institutional investment, can help Islamic finance deliver on its broader developmental mandate.

Recalibrating with purpose

As Hilal concludes, the next phase of Islamic Finance is not about choosing between ideals and impact. It is about integrating ethical integrity with practical relevance – ensuring that the industry grows while staying anchored to its values.

At Standard Chartered Saadiq, we remain committed to supporting this transition. Through our global network, deep-rooted Shariah expertise, and ongoing investment in sustainable finance and innovation, we aim to help shape a more inclusive and purposeful future for Islamic finance.

“Let us move forward with humility, courage, and creativity. Islamic Finance was never meant to be just a mirror of conventional finance-it was meant to be a lighthouse, offering a principled alternative. The next 50 years will be defined by how well we remember that”

Khurram Hilal

CEO Group Islamic Banking<br><br>

Islamic banking

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