With global asets of currently more than $2.4tn and a
forecast of 7.7% compounded growth per year to reach $3.8tn by 2023, Islamic
finance is becoming “a force to be reckoned with,” the newly released State of
the Global Islamic Economy Report 2019/20, compiled by research and advisory
firm DinarStandard in partnership with the Malaysia Digital Economy Corp,
notes.
It states that the industry was successfully building upon its Shariah-based
principles of ethical and sustainable finance and banking to attract new
clients, both Muslims and non-Muslims who are looking for more ethical ways to
bank and finance projects. This process continually widens the sector’s asset
base.
In regional terms, Southeast Asia and nations of the Gulf Co-operation Council
keep leading the industry, while West and South Asia, particularly Jordan and
Pakistan, are catching up and are now among the top 10 nations for Islamic
finance development in the world, according to the Islamic finance development
indicator, which is part of the report and takes into account the sector’s
quantitative development, knowledge, governance, corporate social
responsibility and awareness of Islamic finance.
The strong role of Islamic finance in Malaysia, which keeps leading the world’s
Islamic finance development indicator index, was underlined in 2017 as Islamic
financing overtook conventional loans as the growth driver for the domestic
banking system, with a 71% increase last year.
Malaysia’s top scoring in the indicator index is further attributed to its
strength to build an Islamic finance ecosystem as part of the country’s key
economic growth areas and the continuous focus on the halal economy.
Indonesia, in turn, jumped six notches from ten to four on the development
index, an exponential improvement that can be mainly attributed to the
establishment of the 2019-2024 Shariah economy master plan under the government
of President Joko Widodo.
The report also points out that traditional Islamic finance hubs continue to
grow, including in the UK, which has the largest Islamic finance industry in
the OECD, while there is emerging competition from newer players including
Australia and a number of Sub-Saharan African states, including Kenya and
Uganda, as well as Muslim-majority Central Asian countries such as Tajikistan
and Uzbekistan which are currently working on implementing new regulations to
develop the sector.
A central matter is the growing importance of financial technology in the
entire global financial industry and the readiness for adoption, the report
continues. While Islamic finance has not kept pace with the conventional
banking sector’s adoption of fintech, change is happening through the
development of digital banking and other fintech solutions and processes,
including blockchain technology implemented by the Islamic Development Bank to
develop Shariah-compliant products in order to support financial inclusion.
The report also identifies opportunities for Islamic finance which are not yet
completely realised. Among them is Islamic insurance, or takaful, a sector
where the development of new financial products based on murabhahah and waqf
would promise further growth.
Another big opportunity remains Islamic trade finance. With global trade being
a $12.3tn-industry as per 2017 figures, representing 75% of global trade, total
trade within the 57 member countries of the Organization of Islamic
Co-operation stood at $250bn in that year. However, the Islamic trade finance
industry as such was only at an estimated $186bn, reflecting substantial room
for growth which could be achieved by developing standard documentation for
Islamic trade finance deals and trade hubs in key regions offering progressive
trade finance solutions.
A challenge remains the lack of talent in the industry which results in a
competency gap, namely in Shariah expertise, innovation and product
development, as well as technical Islamic finance knowledge, owing to too few
specialised educational institutions in a number of Islamic countries. While
this has held the industry back thus far, the increase in education initiatives
has been promising, the report concludes.
By Arno Maierbrugger/Gulf Times Correspondent/Bangkok Source: https://www.gulf-times.com/story/647962/Islamic-finance-becoming-a-global-force-says-repor