Islamic finance industry slowing to single digit growth says study

MANAMA: The Islamic finance industry is seen slowing to single digit growth, reaching $3.69 trillion by 2024, as the world attempts to deal with the Coronavirus pandemic, says a new study.

According to the 2020 Islamic Finance Development Report by Refinitiv and the Islamic Corporation for the Development of the Private Sector (ICD), while the total impact of the pandemic on the industry cannot be measured quantitively before the end of 2020, at the time of writing several Islamic financial institutions including Islamic banks had reported losses or a drop in profits caused by a Covid-related increase in loan impairments.

Ayman Sejiny, the chief executive of ICD, said: “The Covid-19 pandemic will have a more severe and deeper impact on Islamic finance, as the current crisis is affecting aggregate demand, small and medium enterprises (SMEs), and low-income individuals particularly hard.

“Compared to conventional banking, Islamic finance has a larger exposure to SMEs, microfinance and retail lending, especially in Asia.

“With SMEs facing multiple issues (lower revenues, cash flow issues, high levels of leverage, short-term financing obligations), this will increase the quantum of non-performing financings and vulnerability of Islamic banks’ portfolios,” Mr Sejiny added.

 

 

The report notes that governments and multilateral organisations have introduced a stream of wide-ranging measures to defend their economies and societies.

These include some extremely large government stimulus packages that have stretched fiscal deficits to the limit.

Central banks are turning to debt to shore up their fiscal positions and sukuk are proving an increasingly popular choice of instrument.

Meanwhile, Islamic financial institutions have been responding to the crisis by stepping up their digital services.

Among the main findings of the report is that global assets for the industry returned to double-digit growth in 2019, rising 14 per cent to $2.88 trillion, thus demonstrating resilience even as sustained low oil prices weighed on the main Islamic finance economies.

Islamic finance assets in the GCC reached $1.2trn in 2019, followed by the Mena region (excluding the GCC) at $755bn, and Southeast Asia at $685bn.

The Islamic banking sector, which grew 14pc in 2019 to $1.99trn, contributes the bulk of global Islamic finance assets.

 

 

The report derives its analysis from the Islamic Finance Development Indicator (IFDI) based on statistics from 135 countries around the world.

The indicator is based on five key metrics – quantitative development, knowledge, governance, awareness, and corporate and social responsibility (CSR).

“A lack of relevant, actionable data has held back the Islamic finance industry for too long. That’s why the Islamic Finance Development Indicator is now such an important tool for policy makers and market participants,” said Refinitiv chief executive David Craig.

 

 

According to the report, the top five developed countries in Islamic finance are Malaysia, Indonesia, Bahrain, UAE and Saudi Arabia.

It also found that Green and Socially Responsible Investments (SRI) increased in the UAE and Southeast Asia in 2020.

Corporate sukuk issuance has also picked up after a cautious halt in the first quarter of 2020.

The report indicates that companies are taking advantage of low borrowing costs to shore up their finances while the pandemic continues to batter trade and economies.

 

Source: http://www.gdnonline.com/Details/909918/Islamic-finance-industry-slowing-to-single-digit-growth-says-study

 

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