ISLAMIC FINANCE
Islamic finance offers Middle East investors a valuable gateway to ESG investments Among the reverberations of the global pandemic came the growth of Islamic Finance and heightened appreciation of the importance of ESG investing. Soumaya Hissoussi, Senior Vice President, Lombard Odier explains to MEA Finance why both are on the ascent and are naturally well suited, with the social “S” component set to gain increasing prominence Soumaya Hissoussi, Senior Vice President, Lombard Odier Abu Dhabi Branch
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s the shockwaves of the p a n d e m i c reve r b e ra te d through the global capital markets, 2020 marked a year of prolonged uncertainty, volatility and, at times, unprecedented change. However, amidst the turbulence, two key trends have stood out showing signs of resilience and major growth – these were Islamic finance and ESG investing, respectively. As we look ahead to the Middle East’s economic roadmap post pandemic, Islamic finance assets will not only play a key role in supporting future economic stability but will also offer investors a crucial entry point into ESG investment strategies, unlocking significant opportunities for sustainable, long term value creation. Considering first, the key catalysts emerging which are accelerating the
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rise of Islamic finance, and second, its role in facilitating more sustainable, ethical investment opportunities more broadly, as we rear our heads from the lockdown and look to the future, there exists an exciting opportunity for the Middle East – an opportunity which our future generations of young investors will play a key part in delivering. Despite challenging macroeconomic conditions, Islamic finance is on the ascent Whilst the equity markets fluctuated throughout 2020, and traditional fixed income suffered sharp selloffs at the onset of the pandemic, as many countries struggled to contend with the economic impact of COVID-19, Islamic banking assets offered a far more positive picture for investors, buoyed by increasing demand and supportive relief and state aid policies from governments.
Banking and Finance news in the MEA market
Nasdaq Dubai saw a significant number of sukuk listings in 2020, culminating in a $1 billion sukuk by Dubai Islamic Bank, listed in November. Data from a recent Moody’s report revealed Sukuk issuances grew by 15% in 2020 to a record annual high of $205 billion, marking a fifth consecutive year of growth. Whilst these highs are estimated to stabilise in 2021, Moody’s estimates continue strong growth in global Islamic funds under management, rising at an annual rate of 4-5% in 2021-2022. At a time when many asset classes have underperformed and buckled under the strain of pandemic-induced economic pressures, investors have sought safety in Islamic banking, which has provided much needed stability and risk mitigation. However beyond just wealth preservation, looking forwards, Shari’ah compliant strategies offer the potential for investors to tap into more diverse, and at the same time
