Standardisation critical to sustainable growth of Islamic finance

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Dubai

The global Islamic finance industry is expected to grow by 10 percent – 12 percent in 2021-2022 and the growth of Islamic banking assets in some Gulf Cooperation Council (GCC) countries, Malaysia, and Turkey and sukuk issuances exceeding maturities explain this performance.

Islamic finance grew rapidly in 2020, albeit at a slower pace than in 2019, despite the double shock from the pandemic and the drop in the oil price.

Although we expect a modest recovery for most core Islamic finance countries in 2021-2022, we think that the sector will expand against the backdrop of continued standardisation and integration.

Within the GCC countries, we expect financing growth in Saudi Arabia to remain strong, fueled by mortgages and by corporate lending as the country implements some of its Vision 2030 projects.

We also expect some growth in Qatar supported by investments related to the upcoming World Cup, and to a lesser extent the United Arab Emirates where the Dubai Expo is likely to help boost economic activity.

On the sukuk front, we expect total sukuk issuance of about $140 billion – $155bn in 2021 as compared to $139.8bn in 2020.

In the first-half of 2021, sukuk issuance volumes increased 5 percent (20 percent including primary issuances only) due to strong liquidity, low interest rates, and some issuers returning to the market.

The additional challenges related to compliance with Accounting and Auditing Organisation for Islamic Financial Institutions’ (AAOIFI) standards in the GCC has slowed some issuers, though.

The overall takaful sector and funds has a relatively small contribution to the overall industry, it is expected to grow this year.

The takaful sector is expected to expand at 5 percent-10 percent, while the funds industry might see some growth as investors chase yields.—Arabian Business

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