ISLAMIC BANKING & FINANCE
A window of opportunity in Islamic finance Merger and acquisition activity, soaring demand for Shari’ahcompliant products together with proactive government legislation are driving the growth of Islamic banking assets in the Middle East
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he Islamic finance market has grown considerably over the past decade, with several reasons driving the increased demand for global Shari’ah-compliant finance. The industry has inarguably demonstrated positive growth in 2021/22 albeit at a slower rate compared to the previous fiscal year on recovering oil prices and extensive rollout of COVID-19 vaccine. The current challenging environment has created opportunities to accelerate and unlock the long-term potential of the Islamic finance sector, according to S&P Global. The pandemic crisis is expected to put the Islamic finance industry back on environmental, social, and governance (ESG) investors’ radar, streamline Sukuk issuance to encourage the industry’s attractiveness and leverage technology to create a nimbler finance industry. “As the GCC region has grown in relevance for emerging market investors in recent years, so too has the Sukuk market,” according to FTSE Russell. The global
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provider of benchmarks, analytics and data solutions said that the market value of the global Sukuk sector has grown from $15 billion in February 2011 to $126 billion in March 2021—representing a CAGR of 23%. The issuance of Islamic bonds is expected to stabilize in 2021 after five years of expansion, as recovering oil prices have reduced sovereign funding needs in the Gulf region. Moody’s sees total gross shortand long-term Sukuk issuance in 2021 reaching between $190 billion and $200 billion after a record $205 billion in 2020. The improving economic conditions and high funding needs in core Islamic countries have also improved the assetquality metrics of Islamic banks in the Middle East and the lenders’ liquidity is also projected to remain strong. Although there are no striking differences between Islamic and conventional banks in the GCC region owing to their real economyfocused models, Moody’s said that the absence of late payment fees and higher exposure to the real estate sector
Banking and Finance news in the MEA market
could put Shari’ah-compliant banks at a disadvantage. The standardized supervision of Islamic finance is expected to lead to greater market confidence and restoration of Islamic bonds’ attractiveness to issuers. Following the adoption of Shari’ah Standard Number 59 by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), the traditional Murabaha structure is no longer held to be Shari’ah-compliant by the Bahrain-based organization.
Driving sustainability Though green Sukuk issuances have been a rare sight in the Middle East, many corporates and sovereigns borrowers have been issuing fixed-term securities to raise funds for projects with environmental benefits such as renewable energy projects. Moody’s said that Shari’ah-compliant multilateral development banks (MDBs) are well-positioned to benefit from the growing focus on ESGs themes and
