The Ernst & Young World Islamic Banking Competitiveness Report 2013 "Growing Beyond - DNA of Successful Transformation" has forecast that global Islamic banking assets with commercial banks will reach $1.8 trillion in 2013 from $1.3 trillion in 2011, representing average annual growth of 17%, significantly higher than some earlier industry estimates. The top 20 Islamic banks have registered growth of 16% in the past three years. These banks are concentrated in the seven core Islamic banking markets - Saudi Arabia, Kuwait, the UAE, Bahrain, Qatar, Malaysia and Turkey. Indonesia, Egypt, Iraq and Libya are the new markets on the horizon.

Gordon Bennie, MENA Financial Services Leader at Ernst & Young, said: "Ten of the world's 25 rapid growth markets (RGMs) have large Muslim populations and present significant growth prospects for Islamic banking. The fast-growth economies now form almost half of global GDP and remain the main contributors to overall global growth. The outlook for Islamic banking in these markets is bright."

Developments in the MENA region
Post-Arab Spring, the new Islamic regimes in the MENA region are opening their doors to Islamic finance.
 
The newly-elected Muslim Brotherhood in Egypt wants to boost the market share of Islamic banks to 35% in five years from 5% now. Egypt, Iraq and Libya are working on Islamic banking regulatory frameworks, while Turkey, Egypt and Morocco have issued or are planning to issue sovereign sukuks. Several banks in Egypt are expected to launch Sharia-compliant products. A number of both established and new banks are considering introducing Islamic banking operations in these markets.

Amjad Hussain, Partner, Islamic Finance with K&L Gates, an international law firm based in the Qatar Financial centre (QFC) points out that "the regulatory framework governing the Islamic finance industry in the wider region has not changed in a hugely significant manner over the past few years. The approach of the regional regulators has been a light touch by and large. There have been some piecemeal changes to regulations, aimed at implementing prudential changes that have been introduced globally for the conventional banking sector."

Pointing out instances of key decisions taken in the region, he says: "In Oman -the most recent country in the GCC to introduce Islamic finance - we have seen the implementation of a relatively strict approach by the regulator. The central bank is implementing strict requirements for scholars who serve on Sharia boards. This is aimed at addressing concerns around the uniformity of standards amongst different boards and at trying to introduce a more structured approach to supervising Sharia compliance issues. It will be interesting to see what sort of an approach Egypt and Libya will take."

Last year, an Islamic Interbank Benchmark Rate (IIBR) was introduced in a bid to establish an Islamic yield curve. According to the E&Y report, "the IIBR has been evolving through a process of regular reviews from the Islamic Benchmark Committee and the Sharia Committee."

© Qatar Today 2013