By Arno Maierbrugger/Gulf Times Correspondent/Bangkok
Two separate news announcements last week have shed a brilliant light on the Islamic finance industry in Qatar. As reported by Gulf Times, Qatar will launch an energy-focused Islamic bank with a targeted capital of $10bn – the largest of its kind in the world – to finance both domestic and global projects starting from the fourth quarter of 2019. Besides that, Qatar also hosted the global launch of the “iDinar,” a brand new Islamic digital e-token platform backed by physical gold.
These remarkable events coincide with the release of a new report called “Global Islamic Finance Market Growth, Trends, and Forecast (2018-2024)” by India-based market research firm Mordor Intelligence, which comes to the conclusion that the global Islamic finance market will keep growing over the mentioned period owing to strong investments in the halal sectors, infrastructure and energy, as well as sukuk bonds.
The trend will be underpinned by newly deployed electronic modes for all products and services and shows that Qatar is on the right way.
The value of the global Islamic finance market – in terms of combined assets under management – was seen to have crossed the $2tn-mark at the end of 2017 and having reached between $2.05tn and $2.4tn, marking growth of between 8% and 10% over the previous year, whereby the variation is owing to different counting methods of research houses. Estimations are that the market has grown by another 8% to 10% in 2018 and will continue on that trajectory for the time being.
Global sukuk outstanding grew by a record 25.6% to close to $400bn at the end 2017 on the back of strong sovereign and multilateral issuances in key Islamic finance markets to support respective budgetary expenditures. This included debut entries into the sovereign sukuk market by Nigeria, as well as by the pan-African multilateral development finance institution, Africa Finance Corp.
Islamic banking remains the largest segment in the Islamic finance industry, the report notes. Islamic banks contribute 71%, or $1.72tn to overall assets. The sector as of end-2017 comprised of 505 Islamic commercial, wholesale and other types of banks, including 207 Islamic banking windows, whereby commercial banking remained the main contributor to the sector’s growth.
However, the number of players is not necessarily indicative of the size of the industry, at least in terms of assets. Islamic finance’s second-largest market, Saudi Arabia, has 16 Islamic banks, including windows, which is less than the smaller markets of Malaysia.
In the Middle East and North African (Mena) region, Islamic banking assets represented 14% of total banking assets in the research period. In the Gulf Co-operation Council, the market share of Islamic banking crossed the 25%-threshold, which suggests that Islamic banks have become systemically important in these countries.
According to another research by consultancy Deloitte, Islamic finance is set for more growth as the widespread socio-economic development in the Mena region is expected to continue. Growth is driven by multiple factors such as a globally growing Muslim population standing at around 1.7bn, out of which 50mn in Europe are additionally looking at investment products catered to their needs; the search for ethical investments by Muslim and non-Muslim investors; the need for Islamic project financing for the infrastructure and energy projects in the region, as well as a rise in sophistication in Shariah-compliant contracts and their utilisation in the development of modern financial instruments.
With the rapidly growing popularity of mobile banking, Islamic banks are also catching up on this trend, with a number of digital-only banks entering the space, as well as disruptive new players such as crypto finance firms and Islamic fintechs.
Islamic banking is also increasingly perceived of generally having higher standards than conventional banking; in a way Islamic banks would not take on irresponsible risks or pay disproportionate bonuses to their top bankers. Furthermore, the absence of opaque financial instruments and interest payments and Islamic bank’s reliance on tangible assets that are paying off profit is seen as another advantage.
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