Arab News, Tue, Apr 30, 2024 | Shawwal 21, 1445
Islamic finance industry projected to grow in 2024-2025
Saudi Arabia:
The Islamic finance industry is projected to grow globally in 2024-2025 with
total assets likely to witness single-digit growth driven by economic
diversification efforts, a report said.
It predicted that sukuk issuance globally would
hover between $160 billion and $170 billion in 2024, representing a steady
momentum from $168.4 billion in 2023 to $179.4 billion in 2022.
In its latest analysis, credit rating agency S&P
Global highlighted that the industry grew by 8 percent and 8.2 percent in 2023
and 2022, respectively, stemming from growth in banking assets and the
sukuk industry.
According to the US-based firm, Islamic banking
assets grew 56 percent in 2023 compared to 72 percent in 2022.
Financial institutions across the Gulf Cooperation
Council region accounted for 86 percent of the reserve increase in 2023, with
Saudi Arabia becoming the chief contributor, having generated 56.7 percent of
the maturation.
“We expect the implementation of Vision 2030 and
growth in corporate and mortgage lending to continue supporting the Islamic
finance industry over the next 12-24 months. In addition, the UAE showed a
stronger contribution in 2023 thanks to the good performance of the non-oil
sector,” the report noted.
It added: “Elsewhere, we observed some growth,
particularly in Turkiye and Indonesia. The performance in Malaysia and Turkiye
was somewhat tempered by the depreciation of the ringgit and the lira.”
According to the US-based firm, the issuance of
this Shariah-compliant debt product began on a strong footing in 2024, with
Saudi Arabia becoming a key contributor to the performance.
“The drop in issuance volumes in 2023, which
mainly resulted from tighter liquidity conditions in Saudi Arabia’s banking
system and Indonesia’s lower fiscal deficit, was somewhat compensated by an
increase in foreign currency-denominated sukuk issuance,” S&P Global said in the
report.
It added: “The market has started 2024 on a strong
footing, with total issuance reaching $46.8 billion at March 31, 2024, compared
with $38.2 billion at March 31, 2023.”
The analysis highlighted that the sukuk market
will continue its growth momentum in the near term as financing needs in core
Islamic finance countries remain high, given ongoing economic transformation
programs, especially in countries like Saudi Arabia.
“We expect the sukuk market to fill in some of
these needs. Specifically, we see some opportunities in the structured finance
space with banks tapping the sukuk market to refinance their sizable mortgage
books,” said the agency in the report.
The agency highlighted that the drive for
digitalization and sustainability initiatives have yielded mixed results in the
Islamic finance industry.
“While opportunities related to sustainable
finance are significant as the industry is concentrated in oil exporting
countries, progress has been relatively slow and limited in the global context,”
according to S&P Global.
However, the report noted that digitalization has
helped the banking side of the industry.
S&P Global concluded the study by saying that the
future of Islamic finance is sustainable, collaborative, and digital.
“It is sustainable thanks to the alignment between
Shariah principles, overarching pillars of sustainability, and the value
proposition of Islamic finance that capture more than just financial
objectives,” said the report.
According to the analysis, the future of Islamic
finance is collaborative because stakeholders do not want to disrupt the
industry equilibrium and erase the development achieved over the past 50 years.
The report added that digitalization will also
impact Islamic finance in the coming years, as leveraging emerging technologies
could help the industry enhance its efficiency and ultimately increase its value
proposition for investors and issuers.
Earlier this month, another report released by
Fitch Ratings noted that global outstanding sukuk expanded 10 percent year on
year to reach $867 million at the end of the first quarter of 2024.
The credit rating agency attributed the growth of
this Islamic debt product to funding and refinancing needs, and the development
of the debt capital market in the GCC region.
The report, however, added that new Shariah
requirements that could alter credit risk, geopolitical uncertainties and high
oil prices, could affect the growth of the sukuk market this year.