Out-Law News 1 min. read

Rise of Islamic finance and banking ‘to reach new heights in 2015’

Islamic banking and finance is projected to exceed $2.5 trillion of assets in 2015 as the industry extends its reach into new international markets, according to the Dubai-based AlHuda Centre of Islamic Banking and Economics (CIBE).

The CIBE said the industry realised $2.1tn of assets in 2014, owing to “gains in popularity in traditional markets” such as Malaysia and the Middle East, and boosted by moves into new markets in Europe, Australia and China.

CIBE chief executive officer Muhammad Zubair Mughal said Islamic banking is likely to represent a share of 86% of the industry’s $2.5tn market in 2015, followed by sukuk, the Islamic equivalent of a bond (6%), Islamic funds (4%), takaful (Islamic insurance – 2%) and Islamic micro-finance (1%). He said Dubai will continue in its role as “a global Islamic finance hub”.

Zubair Mughal said there are more than 1,500 organisations working for Islamic banking, finance, takaful, sukuk, Islamic funds and micro-finance in more than 90 countries, some 40% of which are non-Muslim nations. He said Muslim countries, which have a 76% share of the global Islamic banking market, include Qatar, Saudi Arabia, the United Arab Emirates, Malaysia, Pakistan and Indonesia.

Zubair Mughal said that the sukuk market recovered in 2014 after a fall in 2013 and promises “a great chance of rapid growth” in 2015. He also anticipated that the sukuk market will reach $150 billion, with Islamic funds having “great potential” of attaining a market share worth around $100bn.

On takaful, Zubair Mughal forecast a growth rate of 15% and said the global takaful contribution is expected to reach $20bn during 2015. “Tanzania, Namibia, Morocco, and India are the new destinations for Islamic insurance,” he said. The new year is also expected to see increased take-up of Islamic micro-finance, which is being promoted by “many multilateral agencies” and backed by governments in countries such as Pakistan and Malaysia, Zubair Mughal said.

In September 2014, South Africa entered the sukuk market with the launch of a $500 million Islamic bond. The National Treasury said it had concluded its debut 5.75-year Islamic bond issuance in the international capital markets priced at a coupon rate of 3.90%, “representing a spread of 180 basis points above the corresponding benchmark rate”.

In October, the governor of Malaysia's central bank, Bank Negara Malaysia, said the $270bn global market for sukuk could become an "important source of funding" for infrastructure and other long-term projects. Zeti Akhtar Aziz told the 10th World Islamic Economic Forum in Dubai that the sukuk market had "significant potential" to fund infrastructure projects in the Gulf Cooperation Council, Africa and Asia. She said that some developing economies in Africa were already looking to the sukuk market as a means of obtaining financing for infrastructure.

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