Islamic finance: Balancing innovation and integrity

Shariah-compliant financial services continue to see rising demand, as Islamic banking enters a new phase defined by digital innovation, evolving regulatory frameworks, and heightened governance expectations.

For Tuan Shanaz Hajireen, Chief Business Administration & Control Officer at Siraj Finance PJSC, this transformation reflects decades of industry progress. With more than 30 years of banking experience, he has helped build Islamic retail and SME banking platforms within financial institutions. He highlights the key opportunities and operational priorities shaping the next stage of Islamic banking and finance.

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Islamic banking has grown significantly in the UAE over the past two decades. In your view, what will define the next phase of growth for the sector?

Over the past two decades, Islamic banking in the UAE has evolved from a niche segment into a core pillar of the UAE financial system, underscored by the national strategy approved in early 2025 aiming to double Islamic banking assets to Dh2.56 trillion. In my view, the next phase of growth will be significantly defined by digital-first banking models that remain firmly anchored in Sharia governance.

Institutions are increasingly investing in AI-driven services, mobile banking, and fintech partnerships to enhance customer experience while maintaining strict compliance with AAOIFI Shariah standards. Continuous product innovation and flexibility are critical to drive Islamic finance toward greater market share by exploring new developments such as tokenisation, leveraging real assets that back all Shariah-compliant structures.

Thus, balance between innovation and compliance is critical. By embedding Sharia oversight at the product design stage and leveraging digital infrastructure, Islamic banks can deliver faster, more transparent, and customer-centric solutions, positioning the UAE as a leading global hub for a digital-savvy Shariah-compliant financial system.

You have helped establish Islamic retail and SME banking verticals. What are the key elements required to build and scale Islamic banking within a conventional bank?

From my experience, scaling Islamic banking within a conventional institution requires technology integration, specialised talent, and scalable operational infrastructure. Core banking systems must be capable of supporting different types of Islamic contracts and profit-calculation models, while digital channels allow institutions to efficiently reach a broader customer base across retail and SME customer segments.

At the same time, investing in skilled professionals — bankers who understand both conventional finance and Shariah structures is essential for product innovation and risk management. When supported by strong governance frameworks and digital capabilities, Islamic banking can evolve from a niche offering into a fully integrated and profitable business line within a conventional banking environment.

How important is strong governance in maintaining trust and resilience in Islamic banking, especially during periods of economic uncertainty?

In Islamic banking, strong governance is essential because it underpins risk management, transparency, and institutional discipline. During economic uncertainty, the strength of an institution’s governance framework often determines how effectively it can respond to market stress.

Clear credit policies aligned with strategic risk appetite, prudent asset-backed financing structures, and rigorous internal controls help mitigate systemic risk while preserving financial stability. Additionally, the presence of independent Sharia governance supervision ensures that all transactions remain compliant and transparent, reinforcing stakeholder confidence.

Institutions that follow internationally recognised Shariah-compliant frameworks, such as those developed by AAOIFI and the Islamic Financial Services Board, ensure business continuity and adaptability by embedding key mechanisms of governance, risk management, and compliance across their operations.

With digital transformation and tighter regulation reshaping finance, what priorities should banks focus on to ensure sustainable growth?

Sustainable growth in today’s financial environment depends on embedding a strong risk culture across the entire organisation. Banks should prioritise clear risk policies, robust operational controls with a focus on automation, and proactive regulatory compliance.

Digital transformation also requires enhanced security oversight, particularly in areas such as data protection, fraud prevention, and transaction monitoring. Institutions that integrate governance, risk management, and technology strategies are better positioned to be resilient and respond to regulatory expectations and economic volatility.

Further, by aligning internal frameworks with global regulatory standards and maintaining transparency with regulators and stakeholders, banks can achieve sustainable growth while safeguarding stability and institutional credibility.