Slow­down in Is­lamic fi­nance to run into next year: S&P rat­ings

The Myanmar Times - - International Business -

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. –

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