The Banking Executive Magazine - May 2026 Issue

Islamic Finance Islamic Finance as a Driver of Real Economy Growth: THE IFETAA MODEL Across Africa and the Arab region, small and medium-sized enterprises (SMEs) are widely recognized as the backbone of economic growth, job creation, and structural transforma- tion. In Africa alone, between 8 and 11 million young people enter the labour market every year, yet only about 3 million formal wage jobs are created annually. The capacity of economies to absorb this demo- graphic pressure depends over- whelmingly on the growth and productivity of SMEs Yet SMEs remain consistently under- financed. Across African and Arab economies, fewer than one in five firms has access to a bank loan or line of credit, and when financing is available it is often priced at levels incompatible with long-term invest- ment. In many African markets, SME lending frequently exceeds 20 per- cent, compared with single-digit rates in several emerging Asian economies. At such costs of capital, firms struggle to invest in technology, expand operations, or move into higher-value segments of regional and global value chains. Results from a joint survey of 52 financial institu- tions conducted by the United Na- tions Industrial Development Organ- ization (UNIDO), Union of Arab Banks (UAB), Accounting and Audit- ing Organization of Islamic Financial Institutions (AAOIFI) and the Africa Finance Corporation (AFC) high- lights that this gap is driven not only by liquidity constraints but also by persistent structural barriers, particularly limited collateral, weak financial transparency, and underde- veloped credit information systems (Figure 1). the BANKING EXECUTIVE 42 ISSUE 209 MAY 2026 by Hoda Tarek Zakria and Salma Abdel Gawwad United Nations Industrial Development Organization