The global Islamic finance industry will grow at a slower pace as sukuk volumes shrink and core markets grapple with economic slowdowns caused by Covid-19 pandemic, S&P Global Ratings said.
The $2.4 trillion (Dh8.81tn) Sharia-compliant finance industry is expected to register “low to mid-single-digit growth” this year and in 2021, the credit rating agency said in a report yesterday.
The industry registered strong growth of 11.4 per cent last year on the back of sukuk issuance that was higher than expected.
“The significant slowdown of core Islamic finance economies in 2020, because of measures implemented by various governments to contain the Covid-19 pandemic, and the expected mild recovery in 2021, explain our expectations,” Mohamed Damak, senior director and global head of Islamic Finance at S&P, said.
S&P said the volume of Islamic bond issuance will drop to $100 billion this year, from $162bn reported last year when Turkey, GCC issuers, Malaysia and Indonesia supported the market.
The agency did not specify its issuance expectations for next year but said that the pandemic and lower oil prices clouded the outlook for the global sukuk market, which will continue to remain on a downward trajectory in 2020 and 2021.
“Amid tougher conditions, we also don’t see core Islamic finance countries using sukuk as a primary source of funding, despite their higher financing needs,” Mr Damak said.
“However, we think that Turkey might try to tap the market aggressively in 2020 to use all of its available funding options.”
The Covid-19 outbreak has killed more than 433,000 people and infected about 8 million people around the world, according to Johns Hopkins University, which is tracking its spread. It has also forced governments to close borders and shut all but essential businesses, bringing economic activity to a halt.
Most of the major economies are now reopening gradually, four months after the World Health Organisation declared Covid-19 a pandemic.
However, the rate of infection is still rising in some emerging and developing economies, which, in turn, is derailing efforts to fully reopen borders.
The short-term outlook for economic recovery remains bleak as the world economy faces its worst recession this year since the Second World War.
Earlier this month, the Organisation for Economic Co-operation and Development projected that global output would contract 7.6 per cent this year in the absence of a vaccine.
The World Bank forecast that global output would shrink by 5.2 per cent, while the International Monetary Fund on Monday said it expects to lower its April forecast of a 3 per cent contraction in global economic activity on June 24, when it releases its latest projections.
However, despite headwinds, S&P expects total assets of Islamic banks and financial institutions around the world to remain stable or record low single-digit growth this year and next, after a strong growth in 2019.
The total assets of Islamic institutions grew by 6.6 per cent last year, underpinned by the strong performance of financial institutions in the GCC.
The credit rating agency said in April that banks in the Gulf, including Islamic lenders, would be able to navigate the current downturn, thanks to their strong earning capacity.
Buffers developed during healthier times by banks in the region could help them take a combined hit of $36bn due to Covid-19, before moving into the red.
Meanwhile, the takaful, or Sharia-compliant insurance, sector is expected to expand at mid to high single-digit rates, while the funds industry might be affected by the aftereffects of market volatility.
“Overall, we believe low to mid-single-digit growth for the overall industry is a fair assumption over the next two years,” Mr Damak said.
AS IT STANDS IN POOL A
1. Japan - Played 3, Won 3, Points 14
2. Ireland - Played 3, Won 2, Lost 1, Points 11
3. Scotland - Played 2, Won 1, Lost 1, Points 5
Remaining fixtures
Scotland v Russia – Wednesday, 11.15am
Ireland v Samoa – Saturday, 2.45pm
Japan v Scotland – Sunday, 2.45pm
The Year Earth Changed
Directed by:Tom Beard
Narrated by: Sir David Attenborough
Stars: 4
Key findings of Jenkins report
- Founder of the Muslim Brotherhood, Hassan al Banna, "accepted the political utility of violence"
- Views of key Muslim Brotherhood ideologue, Sayyid Qutb, have “consistently been understood” as permitting “the use of extreme violence in the pursuit of the perfect Islamic society” and “never been institutionally disowned” by the movement.
- Muslim Brotherhood at all levels has repeatedly defended Hamas attacks against Israel, including the use of suicide bombers and the killing of civilians.
- Laying out the report in the House of Commons, David Cameron told MPs: "The main findings of the review support the conclusion that membership of, association with, or influence by the Muslim Brotherhood should be considered as a possible indicator of extremism."
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Farage on Muslim Brotherhood
Nigel Farage told Reform's annual conference that the party will proscribe the Muslim Brotherhood if he becomes Prime Minister.
"We will stop dangerous organisations with links to terrorism operating in our country," he said. "Quite why we've been so gutless about this – both Labour and Conservative – I don't know.
“All across the Middle East, countries have banned and proscribed the Muslim Brotherhood as a dangerous organisation. We will do the very same.”
It is 10 years since a ground-breaking report into the Muslim Brotherhood by Sir John Jenkins.
Among the former diplomat's findings was an assessment that “the use of extreme violence in the pursuit of the perfect Islamic society” has “never been institutionally disowned” by the movement.
The prime minister at the time, David Cameron, who commissioned the report, said membership or association with the Muslim Brotherhood was a "possible indicator of extremism" but it would not be banned.
PROFILE OF HALAN
Started: November 2017
Founders: Mounir Nakhla, Ahmed Mohsen and Mohamed Aboulnaga
Based: Cairo, Egypt
Sector: transport and logistics
Size: 150 employees
Investment: approximately $8 million
Investors include: Singapore’s Battery Road Digital Holdings, Egypt’s Algebra Ventures, Uber co-founder and former CTO Oscar Salazar
Jigra
Starring: Alia Bhatt, Vedang Raina, Manoj Pahwa, Harsh Singh
Pakistan v New Zealand Test series
Pakistan: Sarfraz (c), Hafeez, Imam, Azhar, Sohail, Shafiq, Azam, Saad, Yasir, Asif, Abbas, Hassan, Afridi, Ashraf, Hamza
New Zealand: Williamson (c), Blundell, Boult, De Grandhomme, Henry, Latham, Nicholls, Ajaz, Raval, Sodhi, Somerville, Southee, Taylor, Wagner
Umpires: Bruce Oxerford (AUS) and Ian Gould (ENG); TV umpire: Paul Reiffel (AUS); Match referee: David Boon (AUS)
Tickets and schedule: Entry is free for all spectators. Gates open at 9am. Play commences at 10am
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