Financial Innovation within Universal Banks: A Catalyst for Growth in The Islamic Finance Industry -An Analytical Approach of Islamic Index Funds in HSBC and BNP Paribas-

Abstract

Financial innovation plays a key role in the global competitive strategies of universal banks. Their advanced “banking engineering” enhances both economies of scale and scope, while creating economic barriers for competitors. Similarly, Islamic innovative products in universal banks are designed to differentiate Sharia-compliant market on a global scale. This article explores how universal banks contribute to the growth of the Islamic finance industry (IFI) through the continuous development of innovative Sharia-compliant products.

The study adopts an analytical approach, focusing on two Islamic Index Funds developed by two universal banks: the HSBC Global Islamic Equity Index Fund and the BNP Paribas Islamic Equity Optimizer. Relying on secondary data collected from Fund factsheets and the annual reports, as well as advisory and trading platforms, the analysis examines the performance of these funds over a ten-year period, to evaluate their role as an enhancing factor to the growth of the Islamic Finance Industry.