05 October 2015
JEDDAH -- 2016 will be a crossroads for Islamic finance, according to Standard & Poor's Ratings Services (S&P). A few major factors are shaping the industry's growth and trends.
Headwinds include the possible negative impact of much lower oil prices and the prevailing low interest rates in most major developed countries. Offsetting these negatives are factors such as advancements in standardization for Islamic finance products that could attract new players, the potential lessons for the industry from bank resolution regimes in conventional finance, and the benefits from implementation of Solvency II for many insurance companies in 2016.
The Islamic finance industry's current and expected trends, and the increasing role of regulation and the way it shapes and supports market development will be a particular focus of the 4th Annual Islamic Finance Conference to be hosted by S&P in Dubai on Oct. 6, 2015.
Stuart Anderson, Managing Director & Regional Head, Middle East, Standard & Poor's said: "In our view, after 20 years of solid growth, the industry has achieved a critical mass that enables it to face increasing headwinds. Still, the reality of declining oil revenues could start to take a toll on governments' budgets and economic growth in core markets for Islamic finance. Our 2015 conference will discuss the perspectives on recent market development and regulatory frameworks."
The industry's move toward product standardization has accelerated over the past couple of years, with increasingly similar products and sukuk structures being used across different countries. Higher standardization could help in attracting new players, while leaving space for innovation.
The moves in conventional finance toward the implementation of bank resolution regimes and the bail-in of certain categories of liabilities could spill over into Islamic banking. For example, Islamic banks have so far not strictly applied profit and loss sharing, which is embedded in the principles of Islamic finance. We think that, with the rollout of bank resolution regimes in conventional finance, applying this principle more strictly in Islamic finance could be smoother.
Global sukuk issuance volumes have dropped by about 40% since the beginning of 2015. "The fall stems mainly from the Central Bank of Malaysia's decision to switch out of sukuk to other liquidity management instruments for Malaysian Islamic banks.
In other countries, however, Islamic finance has continued to attract significant interest, and its ethical nature is seducing some clients beyond its natural reach", said Mohamed Damak, Global Head of Islamic Finance for Standard & Poor's.
Still, the advance of Islamic finance into non-Muslim countries has stalled over the past year, mainly due to regulatory hurdles and the generally low interest rate environment that makes other funding sources more attractive.
"We anticipate that assets held by Islamic financial institutions worldwide - currently totaling about $2.0 trillion by our estimates - will expand to approximately $3.0 trillion in the next few years.
We expect the pace of Islamic finance growth will moderate in 2016, compared with advances over the past couple of years, chiefly because of the now less supportive economic environment in the industry's two major growth engines, Malaysia and the GCC."
JEDDAH -- 2016 will be a crossroads for Islamic finance, according to Standard & Poor's Ratings Services (S&P). A few major factors are shaping the industry's growth and trends.
Headwinds include the possible negative impact of much lower oil prices and the prevailing low interest rates in most major developed countries. Offsetting these negatives are factors such as advancements in standardization for Islamic finance products that could attract new players, the potential lessons for the industry from bank resolution regimes in conventional finance, and the benefits from implementation of Solvency II for many insurance companies in 2016.
The Islamic finance industry's current and expected trends, and the increasing role of regulation and the way it shapes and supports market development will be a particular focus of the 4th Annual Islamic Finance Conference to be hosted by S&P in Dubai on Oct. 6, 2015.
Stuart Anderson, Managing Director & Regional Head, Middle East, Standard & Poor's said: "In our view, after 20 years of solid growth, the industry has achieved a critical mass that enables it to face increasing headwinds. Still, the reality of declining oil revenues could start to take a toll on governments' budgets and economic growth in core markets for Islamic finance. Our 2015 conference will discuss the perspectives on recent market development and regulatory frameworks."
The industry's move toward product standardization has accelerated over the past couple of years, with increasingly similar products and sukuk structures being used across different countries. Higher standardization could help in attracting new players, while leaving space for innovation.
The moves in conventional finance toward the implementation of bank resolution regimes and the bail-in of certain categories of liabilities could spill over into Islamic banking. For example, Islamic banks have so far not strictly applied profit and loss sharing, which is embedded in the principles of Islamic finance. We think that, with the rollout of bank resolution regimes in conventional finance, applying this principle more strictly in Islamic finance could be smoother.
Global sukuk issuance volumes have dropped by about 40% since the beginning of 2015. "The fall stems mainly from the Central Bank of Malaysia's decision to switch out of sukuk to other liquidity management instruments for Malaysian Islamic banks.
In other countries, however, Islamic finance has continued to attract significant interest, and its ethical nature is seducing some clients beyond its natural reach", said Mohamed Damak, Global Head of Islamic Finance for Standard & Poor's.
Still, the advance of Islamic finance into non-Muslim countries has stalled over the past year, mainly due to regulatory hurdles and the generally low interest rate environment that makes other funding sources more attractive.
"We anticipate that assets held by Islamic financial institutions worldwide - currently totaling about $2.0 trillion by our estimates - will expand to approximately $3.0 trillion in the next few years.
We expect the pace of Islamic finance growth will moderate in 2016, compared with advances over the past couple of years, chiefly because of the now less supportive economic environment in the industry's two major growth engines, Malaysia and the GCC."
© The Saudi Gazette 2015
