Asia’s Islamic Finance Industry Growing Stronger By The Year

Asia’s Islamic finance sector is rapidly solidifying its position as a major player in the global industry, according to a report by the Malaysia International Islamic Finance Center (MIFC) and the Islamic Corporation for the Development of the Private Sector. The report, titled “Islamic Finance in Asia: Reaching New Heights,” highlights significant growth in the region’s Islamic finance assets, which grew at an annual rate of 8.4% between 2011 and 2016, reaching $528.7 billion by the end of 2017. This represents 26% of the world’s Shariah-compliant financial assets, making Asia a critical player in the global Islamic finance landscape.

Asia Leading in Sukuk Issuances and Islamic Funds

One of the standout achievements in Asia’s Islamic finance sector is its leadership in sukuk issuances. In 2017, the region accounted for $52.3 billion, or 52.5% of all newly issued sukuk globally, with countries like Hong Kong, Indonesia, and Pakistan playing key roles. Asia also holds a commanding 60.7% share of the global sukuk market, underscoring its dominance in this area. Additionally, the region leads in managing Islamic funds, with 42.8% of global Islamic assets under management by the end of 2017, further solidifying its influence.

Malaysia stands out as the most developed Islamic banking jurisdiction in Asia, managing $182.8 billion in Islamic banking assets, which constitutes 67.5% of the regional market. Following Malaysia is Bangladesh with $30.3 billion (11.2%) and Indonesia with $26.9 billion (9.9%), highlighting the diverse and robust nature of the region’s Islamic finance landscape.

Factors Driving Growth in Asia’s Islamic Finance

The substantial growth in Asia’s Islamic finance sector is driven by several factors, including the rising demand from the region’s growing Muslim population, which currently stands at approximately 985 million people or 60% of the global Muslim population. Additionally, the expansion of Islamic finance into non-Muslim majority countries such as Japan and China, as well as proactive government initiatives, particularly in Malaysia, have fueled this growth.

Malaysia’s leadership in Islamic finance is evident through various initiatives, including the issuance of the world’s first green sukuk in July 2017 by Tadau Energy, and the subsequent adoption of Green Bond Standards by the Association of Southeast Asian Nations (ASEAN) in November 2017. These standards were first implemented in Malaysia and later adopted by Indonesia in February 2018. Malaysia’s commitment to innovation and sustainability in Islamic finance has positioned it as a global leader in this sector.

Furthermore, countries like Indonesia have introduced a five-year roadmap for Islamic banking, which includes new foreign-ownership policies for Islamic banks and the promotion of full-fledged takaful (Islamic insurance) operations. Pakistan has also contributed to the growth of the sector by easing regulations and reducing issuance costs for sukuk, making it more attractive for issuers. These initiatives reflect the region’s commitment to expanding its Islamic finance offerings and enhancing its competitiveness on the global stage.

The Future Outlook: Islamic Finance in Asia

The report projects a promising future for Islamic finance in Asia, predicting that the region’s Islamic finance assets will exceed $1 trillion by 2023. This growth is expected to be supported by strong macroeconomic fundamentals, favorable demographics, increased trade integration, and ongoing economic reforms across the region. As Asia continues to strengthen its position in the global Islamic finance industry, it is poised to become an even more significant player, with the potential to shape the future of this sector.

Moreover, Islamic finance is being increasingly utilized in developing countries to address societal needs such as infrastructure development, transportation, telecommunications, and sanitation. By leveraging Islamic finance instruments like sukuk, these nations can finance the construction of essential public facilities such as hospitals, schools, and universities, combining economic potential with philanthropic objectives.

Asia’s Role in the Global Islamic Finance Landscape

Asia’s Islamic finance sector is not only growing rapidly but is also setting trends in the global market. With the region’s increasing share in sukuk issuances, Islamic funds, and innovative financial instruments like green sukuk, Asia is poised to continue its ascent in the global Islamic finance industry. As countries like Malaysia, Indonesia, and Pakistan lead the way, Asia’s role in shaping the future of Islamic finance is becoming increasingly evident, offering both challenges and opportunities for further growth and development.

As the sector continues to expand, it will be crucial for stakeholders to maintain the momentum by fostering innovation, expanding outreach, and ensuring that Islamic finance remains accessible and beneficial to all. With the right strategies in place, Asia is well on its way to becoming a dominant force in the global Islamic finance market, offering new opportunities for growth and collaboration across the region.