The global Islamic finance industry will grow five percent in 2019-2020, owing to tepid economic conditions in certain core markets, S&P Global Ratings said in a recent report.
The industry expanded by about two percent last year compared with 10 percent in 2017, with strong support from the sukuk market, it added.
Most of the growth stemmed from jumbo sukuk issuances in some Gulf Cooperation Council (GCC) countries in 2017, but this was followed by an about five percent reduction in issuances last year.
S&P expects inclusive standardization, financial technology (fintech), and opportunities related to the industry's social role could help accelerate growth in the next few years.
In particular, standard Sharia interpretation and legal documentation could simplify sukuk issuance and increase its appeal for issuers, while leaving some room for innovation.
"Fintech could stimulate growth by making transactions quicker, more secure, and easier to implement. And we believe the social role of Islamic finance could unlock new growth opportunities as core markets implement the UN Sustainable Development Goals, and issuers and investors become more sensitive to environmental, social and governance (ESG) issues," said Mohamed Damak, head of Islamic finance, S&P Global Ratings.
Meanwhile, the growth of banking assets has also slowed down in almost all core Islamic finance markets. Turkey and Iran lead the decline under a trend that is expected to continue in the next 12-24 months. Malaysia, Indonesia, and the GCC countries were among the few sources of industry growth.
As the economic cycle might turn at some stage, a low-single-digit growth rate over the next two years is a fair assumption, S&P noted.
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