$1 trillion Islamic finance set to double by 2015: S&P

Global Islamic Finance is set to double in size between 2011 and 2015 with the sector increasingly viewed as a real alternative to conventional finance, according to Standard & Poor’s (S&P).

Stuart Anderson, Managing Director & Regional Head (Middle East) at Standard & Poor's,  said: “The global crisis faced by conventional finance has led to Islamic Finance increasingly being viewed as a credible alternative. Issuers and investors have realised that the risk-reward balance in both conventional and Islamic Finance are not fundamentally different.”

S&P expects the $1 trillion global Islamic finance industry to grow 20% over 2011-2015, doubling in size over the period.

According to S&P, Islamic finance growth is currently led by countries in the GCC and Asia, which represent half of the global industry. Young, fast-growing Muslim populations; robust macroeconomic environments; and large infrastructure projects that require financing are the main drivers of this increasing growth. Malaysia leads the global industry while Saudi Arabia leads in the GCC.

Over the last few years, the industry has taken major strides to achieve a broader consensus on Islamic banking structures.

“We have also seen stronger and more active support from domestic authorities, particularly through the creation of regulatory and tax frameworks, ensuring a level playing field between conventional and Islamic instruments,” said Anderson.

A key development expected to drive globalisation and expansion of Islamic banking outside Asia and the GCC is the increasing attractiveness of sukuk among global investors. At a time when conventional banks’ appetite for term loans is declining, S&P believes that sukuk could become a key funding source.

Sukuk issuance looks set to cross $100 billion in September 2012, and is projected by S&P to grow 25 per cent over 2012-2015 to reach about $200 billion a year in 2015. Malaysia, Indonesia and the GCC are expected to account for a combined 85-90 per cent of issuance mainly to finance infrastructure-related projects.

This year, new GCC issuance (as of September 17, 2012) has totalled $19.9 billion across all asset classes compared with $19.4 billion of new issuance in all of 2011.

Asia, meanwhile, has seen sukuk issuance worth $57.9 billion year-to-date, compared with $64.9 billion in 2011. In terms of number of issuances this year, the GCC has accounted for about 50 and Asia for 430 issuances (as of September 17, 2012) compared with 44 and 437, respectively, for 2011.

The global prospects for the Islamic finance industry will be the subject of a conference to be hosted by S&P in Dubai on September 25, 2012. Titled ‘The Globalisation of Islamic Finance: Connecting the GCC with Asia and Beyond’,  S&P’s Islamic finance conference will explore how enhanced links between GCC and Asia can drive greater convergence and globalisation in the industry.

Other key subjects that will be discussed at the event include the prospects for Islamic banks in the GCC when compared to their Asian counterparts; the varying applications of Takaful in Asia and GCC; and how greater use of sukuk can boost GCC and Asian economies.
 

Follow Emirates 24|7 on Google News.