Rating agency Standard & Poor’s on Monday pointed to an opportunity in the current pandemic environment for accelerating and unlocking the long-term potential of Islamic finance.
“COVID-19 offers an opportunity for more integrated and transformative growth with a higher degree of standardization, stronger focus on the industry’s social role and meaningful adoption of financial technology,” it said in a written statement.
According to S&P, stakeholders in the sector are realizing the importance of standardization as government coffers are depleted and access to sukuk remains time-consuming and more complicated than conventional instruments.
A sukuk is an Islamic financial certificate, similar to a bond in Western finance, which complies with Islamic religious law known as Sharia. “Lockdown measures have also shown the importance of leveraging technology and creating a nimbler industry,” it noted.
With the right coordination between different Islamic finance stakeholders, S&P said it expects the industry could create new avenues of sustainable growth that serve the markets.
S&P also projected the Islamic finance industry to show to low- to mid-single-digit growth in 2020-2021 after 11.4% in 2019 following strong sukuk market performance. “The market was, in fact, poised for good performance in 2020, but the pandemic and lower oil prices changed the outlook,” it said.