Doubling Of Islamic Finance Assets To Give Impetus To SMEs

$1.8tr worth Islamic finance sector most developed sector in Islamic economy

Islamic finance may see a significant growth in the coming years. This is considered vital to the financing needs of the small and medium enterprises (SMEs), which contributes to more than 60 per cent of Islamic economy, industry experts said on Thursday.

This issue was discussed by various industry experts at the 11th World Islamic Economic Forum held in Kuala Lumpur with more than 3,000 delegates from almost 100 countries.

The sessions discussed mainly how to give fresh impetus to small and medium sized enterprises, and industry experts feel that a huge quantum growth in Islamic Finance assets could drive the next level of growth.

Islamic Finance assets are projected to grow to $3.2 trillion (Dh11.7 trillion) by 2020 from $1.8 trillion in 2014. Currently Islamic banking represents 74 per cent of the assets, followed by sukuk, according to a study by Thomson Reuters.

“As global acceptance of Islamic finance continues to grow, more corporates, non Muslim sovereigns are announcing Islamic finance initiatives such as ethical finance or Sharia-compliant regulations, as well as sukuk issuances,” said Mustafa Adel, Acting Head of Islamic Finance at Thomson Reuters.

This increased appetite demonstrates that the investors are attracted to the benefits surrounding the ethical principles of Islamic finance, linking finance to physical assets and productive fiscal activities, he added.

Halal food

The Halal food sector, meanwhile, is expected to grow to $1.56 trillion by 2020, with the demand for ethical treatment of animals alone resulting in $100 billion organic food market.

However, they face a challenge of standardisation and accreditation of its principles of treating animals.

The global Muslim market spent about $142 billion on travel in 2014, and is expected to reach $233 billion by 2020. The most popular destination countries for Muslim tourists are Malaysia, Turkey and the UAE, and are currently outpacing other countries in terms of hotel development.

Contrary to the rest of the fashion industry, which is facing financing pressure due to global slowdown, the modest of Islamic fashion sector continues to see expansion. The Islamic fashion sector accounts for about 11 per cent of the global fashion industry with a value of $230 billion and is expected to grow to $327 billion by 2020.

The Muslim pharmaceutical industry is expected to grow to $106 billion by 2019, from the current $75 billion.

Sustainability

Islamic finance has a strong potential in promoting financial stability, financial inclusion and shared prosperity, all contributing to building resilient and equitable growth, said Ahmad Mohammad Ali, president of Islamic Development Bank (IDB) Group.

The principles of Islamic finance can minimise the severity and frequency of financial crises by introducing greater discipline into the financial system and requiring the financier to bear share in the risk, said Ali.

On a broad basis, the industry needs to focus on sustainability, industry experts said.

“There need to be an alignment in the climate bonds, Islamic finance and socially responsible investing as far sustainability is concerned,” said an official from a Sydney-based Bank, who wished not to be named.

The IDB Group is also hopeful that countries in the Islamic world would pursue initiatives particularly the role of Islamic Finance in ensuring robust and inclusive growth.

Originally published on www.gulfnews.com