The global Islamic funds market has grown by more than 300% over the last decade to nearly reach $200 billion in assets under management, the Bahrain-based General Council for Islamic Banks and Financial Institutions (CIBAFI) said.
Islamic assets under management (AuM) grew 13.7% in 2020 despite the COVID-19 pandemic, though that was slower than the 35.1% growth of 2019, it said in a report.
Islamic funds’ AuM growth showed signs of recovery last year, rising to $194.51 billion at the end of the third quarter, a 17.1% increase from end-2020. However, the sector is in its infancy compared to conventional funds.
Islamic finance, which bans interest payments and pure monetary speculation and can only be used to invest in sharia-compliant assets or portfolios, has been on the rise for many years across markets in Africa, the Middle East and Southeast Asia. It remains a fragmented industry with uneven rules and regulations.
“With the growing market for Environmental, Social, and Governance (ESG) investing, Islamic funds possess a huge growth potential and are expected to play a prominent role in the Islamic Financial Services Industry (IFSI) in the coming years,” CIBAFI Secretary General Abdelilah Belatik said in the report.
Saudi Arabia has the most assets under management in the Islamic funds market, followed by Iran and Malaysia, according to the report.
Malaysia, however, has the highest number of funds at 401, followed by Indonesia with 209 and Saudi Arabia with 183.
There are 1,508 Islamic funds globally, operated by 345 Islamic financial institutions in 29 countries, CIBAFI said.
Challenges to the sector include Islamic funds’ regulatory framework and adoption of regulatory standards, sharia governance, a lack of sharia-compliant investments, scalability and capital market development over the long term, the report said.
“Overall, despite showing impressive growth over the years, the global Islamic funds market is relatively immature and much smaller in size compared to its counterpart,” the report said.— Reuters
