Arab News, Sun, May 05, 2024 | Shawwal 26, 1445
Islamic finance industry projected to grow in 2024-2025
Saudi Arabia:
The Islamic finance industry is projected to grow globally in 2024-2025 with
total assets likely to witness single-digit growth driven by economic
diversification efforts, a report said.
It predicted that sukuk issuance globally would hover between $160 billion and
$170 billion in 2024, representing a steady momentum from $168.4 billion in 2023
to $179.4 billion in 2022.
In its latest analysis, credit rating agency S&P Global highlighted that the
industry grew by 8 percent and 8.2 percent in 2023 and 2022, respectively,
stemming from growth in banking assets and the sukuk industry.
According to the US-based firm, Islamic banking assets grew 56 percent in 2023
compared to 72 percent in 2022.
Financial institutions across the Gulf Cooperation Council region accounted for
86 percent of the reserve increase in 2023, with Saudi Arabia becoming the chief
contributor, having generated 56.7 percent of the maturation.
“We expect the implementation of Vision 2030 and growth in corporate and
mortgage lending to continue supporting the Islamic finance industry over the
next 12-24 months. In addition, the UAE showed a stronger contribution in 2023
thanks to the good performance of the non-oil sector,” the report noted.
It added: “Elsewhere, we observed some growth, particularly in Turkiye and
Indonesia. The performance in Malaysia and Turkiye was somewhat tempered by the
depreciation of the ringgit and the lira.”
According to the US-based firm, the issuance of this Shariah-compliant debt
product began on a strong footing in 2024, with Saudi Arabia becoming a key
contributor to the performance.
“The drop in issuance volumes in 2023, which mainly resulted from tighter
liquidity conditions in Saudi Arabia’s banking system and Indonesia’s lower
fiscal deficit, was somewhat compensated by an increase in foreign
currency-denominated sukuk issuance,” S&P Global said in the report.
It added: “The market has started 2024 on a strong footing, with total issuance
reaching $46.8 billion at March 31, 2024, compared with $38.2 billion at March
31, 2023.”
The analysis highlighted that the sukuk market will continue its growth momentum
in the near term as financing needs in core Islamic finance countries remain
high, given ongoing economic transformation programs, especially in countries
like Saudi Arabia.
“We expect the sukuk market to fill in some of these needs. Specifically, we see
some opportunities in the structured finance space with banks tapping the sukuk
market to refinance their sizable mortgage books,” said the agency in the
report.
The agency highlighted that the drive for digitalization and sustainability
initiatives have yielded mixed results in the Islamic finance industry.
“While opportunities related to sustainable finance are significant as the
industry is concentrated in oil exporting countries, progress has been
relatively slow and limited in the global context,” according to S&P Global.
However, the report noted that digitalization has helped the banking side of the
industry.
S&P Global concluded the study by saying that the future of Islamic finance is
sustainable, collaborative, and digital.
“It is sustainable thanks to the alignment between Shariah principles,
overarching pillars of sustainability, and the value proposition of Islamic
finance that capture more than just financial objectives,” said the report.
According to the analysis, the future of Islamic finance is collaborative
because stakeholders do not want to disrupt the industry equilibrium and erase
the development achieved over the past 50 years.
The report added that digitalization will also impact Islamic finance in the
coming years, as leveraging emerging technologies could help the industry
enhance its efficiency and ultimately increase its value proposition for
investors and issuers.