Is­lamic fi­nance to lose some mo­men­tum

The National - News - - BUSINESS - SARMAD KHAN

The Is­lamic fi­nance in­dus­try will ex­pand this year but lower oil prices and a slower eco­nomic growth could force the Sharia-com­pli­ant fi­nan­cial sec­tor to lose mo­men­tum, S&P Global Rat­ings said.

The in­dus­try’s as­sets reached US$2 tril­lion at the end of 2016, slightly be­low S&P’s Septem­ber forecast due to lo­cal cur­rency de­pre­ci­a­tion and tepid eco­nomic per­for­mance in some of the “core Is­lamic fi­nance coun­tries”, the rat­ing agency said.

The economies in the wider Mid­dle East and the North Africa (Mena), es­pe­cially in the Ara­bian Gulf, which ac­count for about a third of the world’s proven oil re­serves, have slowed on the back of lower oil prices, as gov­ern­ments that rely heav­ily on hy­dro­car­bons for rev­enue were forced to cut spend­ing.

Sovereigns and some of the ma­jor cor­po­ra­tions and fi­nan­cial in­sti­tu­tions, have turned to con­ven­tional and Is­lamic debt mar­kets to ad­dress their fund­ing needs.

Is­suance of sukuk – bonds that ad­here to Is­lamic prin­ci­ples – re­mained ro­bust dur­ing 2016 and 2017.

How­ever, that may not be the case next year, S&P said.

“We think that 2018 is less cer­tain as we don’t see some of the large is­suances of last year re­peat­ing next year,” sais Mo­hamed Da­mak, a se­nior di­rec­tor and global head of Is­lamic fi­nance at S&P Global Rat­ings.

Is­lamic fi­nance is viewed as a key growth area by fi­nan­cial hubs in the Mid­dle East and Asia.

Dubai, the com­mer­cial and business hub of the Mid­dle East, is as­pir­ing to be­come the leader in Is­lamic econ­omy and Dubai Is­lamic Econ­omy Devel­op­ment Cen­tre (DIEDC), set up in 2013, an­nounced in May that the emi­rate is get­ting closer to its goal.

S&P, how­ever, said that glob­ally, eco­nomic per­for­mance of core coun­tries, frag­men­ta­tion and lack of in­te­gra­tion by business line and ge­og­ra­phy, and an ab­sence of a strong re­sponse to the long-stand­ing de­bate about stan­dard­i­s­a­tion are some of the fac­tors that could de­ter­mine the sec­tor’s pace of growth in the sec­ond half of 2017 and 2018.

De­spite the prospects of a slower ex­pan­sion, Mr Da­mak said Is­lamic fi­nance has much to of­fer the world’s econ­omy.

“We see a nat­u­ral con­nec­tion be­tween Is­lamic fi­nance prin­ci­ples, re­spon­si­ble fi­nance, sus­tain­able devel­op­ment goals and im­pact in­vest­ing,” he said.

“All aim to cre­ate a more eq­ui­table fi­nan­cial sys­tem that has a pos­i­tive tan­gi­ble im­pact on the econ­omy and pop­u­la­tion.”

The con­tri­bu­tion of Is­lamic fi­nance at global state has so far been lim­ited by the in­dus­try’s rel­a­tively small size and struc­ture, added Mr Da­mak.

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