Islamic finance provides an ‘exciting opportunity’

By 2020, total assets in global Islamic finance expected to reach more than $3 trillion

Sydney—The world of Islamic finance and investing represents an exciting world of opportunities for Muslims all over the world, and one we think should likely continue to grow. Many investors outside the Muslim world might not know much about Islamic finance, but recognition and interest in it has been growing globally. Bank of Malaysia Governor Datuk Muhammad bin Ibrahim spoke at the Global International Islamic Finance Forum (GIFF) in Malaysia and reported that by 2020, total assets in global Islamic finance are expected to reach more than US $3 trillion. He also said that in at least 10 jurisdictions, Islamic banking today represents more than 20% of total banking assets, and in many countries, Islamic banking services are offered in tandem with traditional types of financial services and products.2
For those who are not familiar with Islamic finance, it encompasses both equity and credit-based investments (called sukuk) that are compliant with Islamic (Shariah) law. The goal is the same as with other types of investments: to produce a favourable return and/or generate income.
The difference is that Islamic investments must adhere to various tenets, including the prohibition of the payment of interest (so-called “riba”) as well as certain forbidden activities and products including alcohol, armaments and a number of foodstuffs and food-related activities.
The interpretation of what is Shariah-compliant and what is not can be complex, requiring the active involvement of Islamic scholars (who may not always agree). This can add a layer of complexity for investors. If the main business of a company is not deemed compliant with Shariah law, a portfolio manager cannot purchase, hold or sell its shares. Of course, the desired goal or purpose of any investment is to make money for those who invest in it.
Muslim populations have been growing worldwide, and economies in Muslim countries have similarly been growing. In 1987, Muslim-majority countries represented about 4% of global gross domestic product (GDP); as of December 2015, they represented about 8% of global GDP. We believe that percentage will continue to grow. We also have observed that GDP growth has been higher in emerging markets generally (including many Muslim countries) than in developed markets over the past two decades.
Many Westerners associate countries in the Middle East with the Muslim world, but some countries in Africa and Asia also have large Muslim populations and good potential growth trends, Indonesia being the most populous individual Muslim country. In the charts below, you can see the estimated growth and growth forecasts for Muslim-majority countries as well as select emerging markets versus select developed markets.—Agencies

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