Slowdown in Islamic finance to run into next year: S&P ratings
THE slowdown in Islamic finance growth is likely to continue through 2017 due to low oil prices and lack of regulation, Standard and Poor’s Global Ratings said.
The asset growth of Islamic banks fell to 7 percent last year from 12pc in 2014 when oil prices began to decline, the ratings agency said.
“We think this slowdown will persist in 2016 and 2017 with growth stabilising at around 5 percent. Lower oil prices mean lower liquidity at Islamic and conventional banks in core markets.”
Islamic finance remains concentrated primarily in oil-exporting countries, with Arab states of the Gulf, Malaysia and Iran accounting for more than 80pc of the assets.
The agency projected that low economic growth in core markets of Islamic finance, mainly in the Gulf states, will lead to weaker economic growth and subsequently less liquidity all round.
However, Islamic finance total assets are expected to reach $2.1 trillion by end-2016 and hit $3 trillion during the next decade, a landmark the Sharia-compliant industry was projected to achieve much earlier before the slide in oil prices, it said.
Islamic finance assets have grown between 10pc and 15pc over the past decade.
The industry bans interest, products with excessive uncertainty, gambling, short sales and the financing of activities considered harmful to society.
Around 40 million of the world’s 1.6 billion Muslims are clients of the Islamic finance industry, which has surged in popularity since its niche market days of the early 1970s.
Islamic finance’s risk-sharing features and ban on speculation could pose less systemic risk than conventional financing, the International Monetary Fund said in June. –