Why Halal SMEs Need Islamic Banking to Conquer the Global Market

Imagine a young entrepreneur in Jakarta, crafting halal-certified skincare products that fuse tradition with modern science, or a visionary in Istanbul, developing a halal-friendly travel app for millions of Muslim travelers. Their ideas are bold, their ambition limitless, but they face a common obstacle: finding financial support that aligns with their faith. For countless halal-focused small businesses and startups, the absence of Shariah-compliant funding isn’t just a hurdle—it’s a critical barrier threatening to curb their global potential.

Related: Alliance Islamic Bank Targets RM100mil Financing for Halal SMEs

Funding Gap Harmful for the Booming Halal Economy

As the halal economy is projected to exceed $3 trillion by 2028, these SMEs and startups represent a vast, untapped goldmine of innovation and growth. Yet, their success depends on more than just brilliant ideas. To truly scale and compete on a global stage, these enterprises need Islamic banking to rise to the occasion, offering tailored financial solutions that empower their growth while staying true to Shariah principles.

The halal industry is no longer confined to food and beverages; it has evolved into a global lifestyle economy encompassing modest fashion, halal cosmetics, pharmaceuticals, and even Islamic fintech. A 2023 report by the State of the Global Islamic Economy revealed that consumer spending on halal products reached $2.2 trillion in 2022 and is expected to soar in the coming years.

From halal-certified meat in supermarkets across the United States to the global rise of modest fashion, the halal economy is transcending borders and resonating with both Muslim and non-Muslim consumers. This growth presents unprecedented opportunities for small and medium enterprises (SMEs) and startups eager to innovate within this expanding market.

Yet, these businesses often face a critical challenge: accessing the right type of financing. Conventional loans, which typically involve interest, are incompatible with Islamic principles, leaving many entrepreneurs without viable options to fund their ambitions.

The funding gap is one of the most significant hurdles for halal SMEs and startups. A 2022 Islamic Development Bank (IDB) study found that over 60% of halal entrepreneurs cited limited access to financing as a major barrier to growth.

Unlike larger corporations with established credit histories, small businesses often lack the financial resources to meet stringent requirements for Islamic financing. This leaves many struggling to scale, even as demand for halal products grows globally.

“Without access to funding that aligns with our values, it feels like our growth is constantly capped,” says Aisha Malik, founder of a halal cosmetics startup in Dubai. “Islamic banks have the tools to support us, but many are hesitant to invest in smaller, riskier ventures.”

The Role of Islamic Banking in Empowering Halal Businesses

Islamic banking, grounded in Shariah principles, offers an alternative to conventional loans by focusing on risk-sharing and ethical investments. Financial models such as Mudarabah (investment partnerships) and Musharakah (joint ventures) allow banks and entrepreneurs to share both profits and risks, creating a framework that supports sustainable growth.

These principles align perfectly with the values underpinning the halal economy, yet Islamic banking institutions have been slow to extend their reach to halal-focused startups. While some banks have embraced innovation, offering products tailored to SMEs, many still view startups as too high-risk.

Despite these challenges, there are inspiring examples of Islamic finance empowering halal enterprises:

• Malaysia: A global leader in the halal economy, Malaysia’s Islamic banks actively support SMEs through programs like Maybank’s SME Digital Financing, which offers working capital tailored to halal certification needs.
• Dubai: The Dubai Islamic Economy Development Centre (DIEDC) connects startups with Islamic banks through initiatives that provide funding, mentorship, and market access. HalalBooking, a travel platform catering to Muslim travelers, credits its rapid growth to these partnerships.
• Indonesia: The world’s largest Muslim-majority country has introduced initiatives like Shariah-compliant microloans to support small halal businesses.

These success stories underscore the transformative potential of collaboration between Islamic banks and halal-focused enterprises.

While halal food and beverages dominate the market, other sectors are emerging as growth drivers, offering even more opportunities for Islamic banks to make an impact:

1. Halal Tourism: Muslim-friendly travel is booming, with companies like HalalTrip catering to observant travelers. Scaling these businesses requires significant capital for partnerships, marketing, and infrastructure.
2. Modest Fashion: Valued at $277 billion in 2023, the modest fashion market is thriving. Islamic banks could support designers and manufacturers by financing production and global expansion.
3. Halal Fintech: Startups like Wahed Invest, a Shariah-compliant investment platform, are revolutionizing finance. Partnerships with Islamic banks could accelerate their growth and innovation.

To fully realize the potential of the halal economy, a global framework is essential. Standardized halal certification across borders would reduce compliance costs and streamline export processes, enabling SMEs to compete in international markets.

Islamic banks can play a pivotal role by offering trade financing, easing the financial burden on exporters, and providing access to new markets. Governments in Muslim-majority countries could incentivize these efforts through tax breaks and subsidies for banks that invest in halal-focused enterprises.

The success of halal SMEs and startups hinges on bold, forward-thinking partnerships between Islamic banks and entrepreneurs. To remain relevant, Islamic banks must innovate, embracing technology and rethinking traditional risk models to better support the unique needs of startups.

“The halal economy represents one of the fastest-growing markets in the world,” says Fatima Hussain, an economist specializing in Islamic finance. “But to unlock its full potential, Islamic banks need to see halal entrepreneurs as partners in growth, not risks to be avoided.”

The halal economy is a goldmine of opportunity, and its SMEs and startups are the key to unlocking it. By providing tailored financial solutions, fostering innovation, and championing collaboration, Islamic banks can empower these businesses to thrive globally.

For halal entrepreneurs, the journey to global success may be challenging, but with the right financial support, their impact can be transformative—not just for the halal economy but for the broader global market. The time for Islamic banking to lead the charge is now.