Sukuk is expected to maintain its position as a major growth driver for the Islamic finance industry.
Alpen Capital (ME) Limited and Alpen Asset Advisors Limited announced the publication of their report on Islamic Finance and Wealth Management.
The report provides insight into the global Islamic finance and wealth management industry and presents an overview of the market, along with a perspective of the COVID-19 impact on the industry. The report also covers the various instruments driving the market, along with demand drivers and challenges, emerging trends, and an outlook for the sector.
The report was launched at Nasdaq Dubai over a panel discussion featuring Dr Amin Fateh, General Manager, Minhaj Advisory and Member, Shari’ah Board, Alpen Capital and Alpen Asset Advisors; and Hameed Noor Mohamed, Executive Director, Alpen Capital (ME) Limited, which was moderated by Tahir Mahmood, Head of Business Development of Nasdaq Dubai and DFM.
“Islamic finance and wealth management industry faced the dual shocks of adjusting to the pandemic and low oil prices in 2020. While the industry slowed down during the year after experiencing record growth in 2019, it showed resilience and total Islamic finance assets in 2020 are estimated to match the previous year’s figures. Technology adoption has become one of the most critical drivers of survival. The adoption and integration of new and emerging technologies is likely to streamline the Islamic finance market and broaden the service offerings. An optimistic outlook by the IMF on global economic recovery is expected to spur a recovery within the sector,” says Sameena Ahmad, Managing Director, Alpen Capital (ME) Ltd.
“Sukuk is expected to maintain its position as a major growth driver for the Islamic finance industry. Sukuk has witnessed record-breaking issuances over the past year, and this is likely to continue. Concepts such as ESG/sustainable investing, and green sukuk are also rising in prominence and gaining investor interest. The sector has also seen strong M&A activity in both banking and takaful sectors, and consolidation is expected to continue amid weak economic conditions” says Hameed Noor Mohamed, Executive Director, Alpen Capital (ME) Ltd.
COVID-19 has disrupted global financial markets at an unprecedented scale, and the impact has tested the resilience of Islamic finance markets in equal measure. Factors like growing Muslim population seeking Shariah-compliant financial instruments, rising adoption of technology and the industry’s ability to demonstrate a higher level of ethical credibility have been driving growth.
Islamic Banking accounts for majority of the total global Islamic finance industry assets. The segment has developed at a steady pace in the share of Islamic Banking assets as a percentage of total banking assets has continued to expand year on year.
In 2020, Islamic Banking assets recorded a higher percentage growth as compared to conventional banking assets across select economies like UAE, Saudi Arabia, Oman, Kuwait and Malaysia.
The global market for sukuk has developed significantly over the years and in 2019, it contributed 19 per cent to global Islamic finance industry. Despite initial concerns about the impact of the pandemic on Islamic capital markets, sukuk issuances in 2020 matched the levels seen in 2019.
Within the fast growing Islamic funds segment, Shariah-compliant equity investing provided better protection against the downward risk during the pandemic – the two factors contributed to the outperformance of Shariah-compliant indices were sector allocation (overweight on technology and healthcare sector) and exclusion of highly leveraged companies.
Alpen Capital and Alpen Asset Advisors expect the Islamic industry to continue to grow on the back of robust drivers. IMF projects the global economy to rebound and accelerate at a pace of 6.0 per cent in 2021, followed by a growth of 4.4 per cent in 2022. Stimulus packages, fiscal and monetary easing, and liquidity support by major Islamic governments and Central banks; are likely to drive post-pandemic recovery and demand for Islamic finance assets.
Sukuk as the flagship Islamic capital market instrument will continue to drive growth. The emergence of new avenues such as green sukuk and Socially Responsible Investing (SRI) is likely to boost growth. Going forward, core markets across the Mena and SE Asia regions as well as non-core markets such as Kazakhstan and Uzbekistan could see higher issuances,
While the global Muslim population remains one of most significant drivers of growth for the Islamic Finance industry, the global trend of ethical consumerism is leading to higher appeal of Islamic products. This uptick is likely to attract a new class of consumers driven by social consciousness, trickling down to higher demand for Islamic finance services and platforms.