Islamic finance set to grow by 12% in 2021-22
The global Islamic finance industry will grow by 10 per cent to 12 per cent in 20212022 after slowing to 10.6 per cent in 2020 (excluding Iran), S&P Global Ratings said.
The growth of Islamic banking assets in some Gulf Cooperation Council (GCC) countries, Malaysia, and Turkey and Sukuk issuances exceeding maturities explain this performance.
Islamic finance grew rapidly in 2020, albeit at a slower pace than in 2019, despite the double shock from the pandemic and the drop in the oil price.
“We have excluded Iran from our statistics this year owing to the extreme volatility of the country’s currency in the parallel market (as disclosed by the Central Bank of Iran), which makes comparison with last year’s numbers or any forecasts less meaningful,” the rating agency said.
Although the pandemic offered the possibility of more broadbased and transformative growth, the industry has not yet fully unlocked the opportunities inclusive standardisation affords and increased its share of sustainable finance activity, it said.
Coordination between the different stakeholders is key to the
industry leveraging the opportunities related to the energy transition for core Islamic finance countries and wider social challenges, S&P Global added.
“Although we expect a modest recovery for most core Islamic finance countries in 2021-2022, we think that the sector will expand against the backdrop of continued standardisation and integration,” the rating agency said.
Over the next 12 months, we could see progress on a unified global legal and regulatory framework for Islamic finance that the Dubai Islamic Economy Development Centre (DIEDC) and its
partners are developing.
“Depending on the outcome and its adoption, we believe that such a framework could help resolve the lack of standardisation and harmonisation that the Islamic finance industry has faced for decades,” it added.
S&P Global also expects to see more frequent issuance of dedicated social Islamic finance instruments and green Sukuk as the industry leverages its alignment with environmental, social, and governance (ESG) values. This would help tackle the aftermath of the pandemic and support the agenda for core countries’ energy transition.