Islamic finance assets to reach $2.1 trillion by end-2014

Islamic finance industry will continue to grow driven by both demand and supply factors, and further facilitated by government agencies and financial regulators, KFH-Research, a subsidiary of Kuwait Finance House Group KFH-Group, said in a report.

The report, which focuses on 2014 Islamic finance expectations, forecasts that Islamic finance industry will continue to draw tremendous double digit growth rates across all sectors. 

Moreover, the report forecasts that the total Islamic finance assets to reach $2.1 trillion by the end of 2014, and the total asset of Islamic banking sector to reach $1.6 trillion.

In 2014, gross contributions of the global takaful industry are expected to surpass the $20bln mark. The growth opportunities for the global takaful industry in 2014 and beyond are optimistic on the back of several economic, financial and socio-demographic trends. A number of regulatory developments and government policies that have been put in place are expected to spearhead the growth of the takaful and insurance sectors in various markets during 2014. 

Overall, Islamic finance in 2014, is set to experience another increased momentum, particularly in the sukuk market with the issuances by few sovereigns e.g. UK and Luxembourg.

The Islamic banking sector is likely to witness a surge in demand underpinned by greater economic participation of Muslim nations as well as driven by stronger demand from the population towards Shari’a compliant or ethical financing solutions. Instrumental roles played by multilateral organisations and regulatory bodies are expected to further benefit the Islamic banking and takaful industry especially to low-to-medium income customers as financial inclusion objective has been strongly emphasised moving forward.

Thriving interest of key global/regional financial centres in developing Islamic finance, for instance London, Hong Kong, Singapore Luxembourg, further adds weight to the strong prospects of Islamic finance as markets globally look for alternative sources of funding and investment avenues.

The Islamic finance industry’s assets are estimated to have amounted to $1.8 trillion as at end-2013, recording an over 16% y-o-y growth. Leading the growth has been the Islamic banking sector which represented an almost 80% share of the global Islamic banking assets in 2013. Among the largest global Islamic banking jurisdictions (excluding Iran) in 2013 are Saudi Arabia which captured 18% of global Islamic banking assets, followed by Malaysia (13%), UAE (7%), Kuwait (6%), and Qatar (4%). In 2014, the Islamic banking sector’s assets are expected to reach $1.6 trillion. Advanced Islamic banking markets in the GCC and Asian regions are expected to evolve in greater sophistication in terms of products offerings, as well as from the aspect of regulatory advancement by the financial regulators. On the demand side, Shariah compliant investments and financing products have been dominantly fuelled by a promising economic outlook in the GCC and abundant liquidity flows.

The industry will continue to grow driven by both demand and supply factors, and further facilitated by government agencies and financial regulators.

In a newly released report “Islamic Finance Outlook 2014” by Kuwait Finance House Research Limited (KFHR), the Islamic finance industry is forecasted to continue to chart tremendous double digit growth rates across all sectors, with total industry assets estimated to reach approximately $2.1 trillion as at end-2014. Over the next few years, KFHR foresee the industry’s focus in four key spectrums that will take the industry to greater heights:

1) Strengthening of financial stability and enhancement in  inter-linkages between Islamic finance jurisdictions.

2) Tapping into potential real sector economic activities to expand market share for e.g. by supporting the financing needs of the infrastructural development programmes in GCC and Malaysia.

3) Expanding the range of product offerings to appeal a wider customer base e.g. Islamic wealth management products for high net-worth individuals (HNWs) and Islamic trade financing solutions for corporates.

4) Enhancing talent, education and research development to improve on the industry’s efficiency and innovative capabilities.

In 2013, the sukuk market, managed to once again breach the $100bln mark in terms of new sukuk issuances to close the year with a total of $119.7bln. However the amount fell 8.77% short of the recorded amount in year 2012. Malaysia once again led the 2013 new sukuk with a 69% share of total issuances, followed by Saudi Arabia at 12%, United Arab Emirates (6%), Indonesia (5%) and Turkey (3%).

The global sukuk market is all set to continue its upward trajectory in 2014 as a number of high profile debut sovereign issuances are expected to take place this year. The sovereign sukuk sector will continue to stoke stakeholders’ interest in 2014 as sovereigns including the United Kingdom, Ireland, South Africa, Tunisia, Mauritania, Senegal, Luxembourg and Oman are expected to debut issuances in 2014.

Expectations are also build up on a debut sukuk issuance from the multilateral Asian Development Bank (ADB). Meanwhile, the Islamic Development Bank (IDB) has already announced its intention to issue a $10bln sukuk in the Dubai NASDAQ Exchange in 2014 with plans to continue similar listings on an annual basis.

The Islamic funds segment also registered an 8.4% year-to-date increase in 2013 with total assets under management (AuM) valued at $72.5bln as at 20-Dec-13. A total of 79 new Islamic funds were launched in 2013 with most of the newly launched Islamic funds domiciled Malaysia and Luxembourg.

In 2014, the global Islamic funds industry should benefit from steady global economic recovery which will bolster investor confidence and performance of underlying invested assets. Much of the anticipated recovery will come from the advanced economies, while the growth trajectory of emerging countries will remain stable. In this light, greater investor focus will be placed on policy decisions and reforms in individual emerging economies.

The global takaful industry has experienced strong double-digit growth rates in recent years with worldwide gross takaful contributions estimated to have amounted to almost $19.87bln as at end-2013, reflecting a more than 15% y-o-y growth while recording an impressive 18.1% CAGR during the last 5 years (2007-2012). Saudi Arabia and Malaysia continue to drive the global takaful industry being the two largest takaful markets in terms of total gross contributions.

(Albawaba Busniess / 09 Feb 2014)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com