Dubai: Islamic finance and wealth management industry remained resilient amid pandemic, according to study by Open Capital (ME) Limited and Alpen Asset Advisors Limited which analyzes the impact of the pandemic on the sector.
“The Islamic finance and wealth management industry has faced the double shock of adjusting to the pandemic and historically low oil prices in 2020. While the industry has slowed down during the year after experiencing record growth in 2019, it has shown resilience and total Islamic finance assets in 2020 are expected to match the figures of the previous year, ”said Sameena Ahmad, CEO of Alpen Capital ( ME) Ltd.
Factors such as the growth of the Muslim population seeking Sharia-compliant financial instruments, the increasing adoption of technology, and the industry’s ability to demonstrate a higher level of ethical credibility have spurred the growth.
Islamic banking accounts for the majority of the total global assets of the Islamic finance industry. The segment has grown at a steady pace and the share of Islamic banking assets as a percentage of total banking assets has continued to grow year on year.
In 2020, Islamic banking assets recorded a higher percentage of growth than conventional banking assets in some economies like UAE, Saudi Arabia, Oman, Kuwait and Malaysia. The global sukuk market has grown tremendously over the years and in 2019 it contributed to 19% of the global Islamic finance industry.
Despite initial concerns about the impact of the pandemic on Islamic capital markets, sukuk issuance in 2020 equaled levels seen in 2019.
“Sukuk is expected to maintain its position as a major growth engine for the Islamic finance industry. Sukuk has achieved record issuances over the past year, and this should continue, ”said Hameed Noor Mohamed, Executive Director of Alpen Capital (ME) Ltd.
In the fast-growing Islamic fund segment, investments in Sharia-compliant stocks provided better protection against downside risk during the pandemic – the two factors contributing to the outperformance of Sharia-compliant indices were the sector allocation (overweighting in the technology and healthcare sector) and the exclusion of highly leveraged companies.
Alpen Capital and Alpen Asset Advisors expect the Islamic finance industry to continue to grow on strong drivers. Stimulus packages, fiscal and monetary easing and liquidity support by major Islamic governments and central banks; are likely to stimulate the post-pandemic recovery and demand for Islamic finance assets.
Sukuk, as the flagship instrument of the Islamic capital market, will continue to stimulate growth. The emergence of new avenues such as green sukuk and socially responsible investing (SRI) is likely to stimulate growth.
In the future, major markets in the Middle East and North Africa (MENA) and Southeast Asia regions, as well as secondary markets such as Kazakhstan and Uzbekistan may see higher emissions,
While the global Muslim population remains one of the most important growth engines for the Islamic finance industry, the global trend towards ethical consumerism is leading to an increased appeal of Islamic products. This rise is likely to attract a new class of socially-motivated consumers, spilling over into higher demand for Islamic finance services and platforms.
Reforms to boost growth
The governments of major Islamic financial markets have spearheaded the recovery through initiatives to reform the sector. Although the industry lacks in terms of global standardization, governments are likely to focus more on infrastructure development in the short term. Amid these efforts, technological integration remains the key to fuel the recovery and growth of the Islamic finance industry. There remains growing room for further innovation and collaboration, paving the way for higher profitability for Islamic financial institutions
The sukuk market is expected to gain momentum, fueled by its applications as a financial tool to raise funds for governments as well as businesses. The increase in popularity of Islamic FinTech is leading to an increase in FinTech-focused investment funds, which are likely to accentuate the market and create opportunities for Islamic FinTechs to expand their services.