Islamic finance is set to outpace the growth of conventional banking as governments increasingly tap the sukuk market and individuals use more Sharia-compliant financial instruments, according to Moody’s Investors Service.
“The Islamic finance sector will be supported by governments whose objective is to grow the Islamic finance industry both domestically and globally as well as by continued demand for Islamic products from individuals,” said Nitish Bhojnagarwala, vice president and senior analyst at Moody’s.
“Islamic insurers’ penetration into South East Asia and North Africa will also drive growth in the industry.”
Islamic banking penetration in the GCC, where growth has been most pronounced, increased to 45 per cent in September 2017 from 31 per cent in 2008, while during the same period sukuk issuances more than doubled to $100 billion from $42bn, Moody's said.
Saudi Arabia has $292bn of Islamic assets, making it the largest market for Sharia-compliant products globally , it said.
Sovereign sukuk issuances rose 44 per cent in 2017 from a year earlier, rising to $55bn, Moody’s said. The rating agency said it expected sukuk issuance to remain stable this year, though the rising price of oil may lessen the need for GCC governments to sell debt.
“Sovereign issuance has underpinned the recovery in the global sukuk market activity after a sharp drop in activity in 2015,” Mr Bhojnagarwala said.
“We expect sovereign sukuk issuance volumes to continue to grow in 2018 as governments look to diversify their financing mix and support their strategic objectives of expanding the Islamic finance market both locally and globally.”