The global Islamic finance industry will continue to expand slowly in 2019-2020. The industry is expected to show only about 5 percent growth in 2019-2020, owing to tepid economic conditions in certain core markets, S&P Global Ratings noted yesterday.
However, inclusive standardization, financial technology (fintech), and opportunities related to the industry’s social role could help accelerate growth in the next few years. In particular, standard Sharia interpretation and legal documentation could simplify sukuk issuance and increase its appeal for issuers, while leaving some room for innovation.
Fintech could stimulate growth by making transactions quicker, more secure, and easier to implement. And we believe the social role of Islamic finance could unlock new growth opportunities as core markets implement the UN Sustainable Development Goals, and issuers and investors become more sensitive to environmental, social and governance (ESG) issues.
The Islamic finance industry expanded by about 2 percent in 2018 compared with 10 percent the previous year, according to S&P’s, with strong support from the sukuk market.
In 2017, most of the growth stemmed from jumbo sukuk issuances in some Gulf Cooperation Council (GCC) countries, but this was followed by an about 5 percent reduction in issuances in 2018. In 2019, we S&P does not expect the market to fare much better given the significant volatility in key parameters such as oil prices and geopolitical risk. The growth of banking assets has also slowed down in almost all core Islamic finance markets.
Malaysia, Indonesia, and the GCC countries were among the few sources of industry growth. As the economic cycle might turn at some stage, S&P believes a low-single-digit growth rate over the next two years is a fair assumption. However, it sees three potential accelerators in the next few years: inclusive standardization, fintech, and the social role of Islamic finance.
