Dubai: Standard Chartered Saadiq, the Islamic banking business of Standard Chartered has plans to expand its Sharah-compliant products and services offerings beyond its core markets such as UAE, Malaysia, Indonesia, Pakistan and Bangladesh, senior bank officials said.
Currently Standard Chartered Saadiq is the only international bank that covers all segments of Islamic banking ranging from retail, corporate and capital markets.
With the growing Muslim population around the world and improving banking penetration, the bank expects to see strong growth in the Islamic banking and Islamic finance business in some of the non-core markets in Africa and Far East.
“Currently, global Islamic finance assets are estimated at $1.8 trillion (Dh6.6 trillion). These are expected to grow to $3.3-3.5 trillion by 2020. While the core markets such as the GCC, Malaysia, Pakistan and Indonesia are expected to maintain the growth momentum, we expect more growth to come from new geographies,” said Rehan Shaikh, CEO of Standard Chartered Saadiq.
The Islamic banking universe consist of about 400 Islamic banks including, Islamic banking windows and more than 200 takaful (Islamic insurance) companies. While Saudi Arabia accounts for nearly 50 per cent of the Islamic banking market, the UAE and Malaysia accounts for about 22 per cent and 25 per cent, respectively.
“Africa is a huge space where there are a lot of queries that are coming out. There is always talk about penetrating that market. We are aware of the opportunities, but have not decided on which markets we would go in first,” said Shaikh.
Proactive regulations
Saadiq opened its first African operation in Kenya in 2014. Standard Chartered has operations across 16 African and 23 Asian countries.
The Islamic banking sector continues to outpace growth of conventional banking in key markets, often supported by proactive regulations and strong retail customer demand, according to a recent report from rating agency Moody’s.
Analysts say the recent slowdown in growth of Islamic finance, reflects more challenging economic conditions across a number of core Islamic markets — particularly in the GCC countries due to lower oil prices.
Despite the current challenges, the sector still has potential for further growth, especially in countries such as Oman, Turkey and Indonesia where the penetration of Islamic financing assets remain relatively low (between 5 and 10 per cent) and there are recent initiatives supportive of the growth of this industry.
In Turkey and Indonesia Islamic banks have historically struggled to push beyond 5 per cent of banking system financing in the absence of any significant regulatory support, and despite the introduction of Islamic banking in these countries more than two decades ago. But with the increased focus on governments and regulators in supporting the Islamic finance business is expected to gain momentum in some of the newer markets.
State-sponsored boost
Growing incentives from governments are expected to give the much needed boost to some of key Islamic finance markets in the near future. In Indonesia, recent announcement that 50 per cent of all public financing will be Sharia compliant in the next 10 years provides a massive, state-sponsored boost to the sector. The country has significant pent-up demand for Sharia-compliant financial services especially among the relatively under-banked rural populations, who seek products that are more aligned with their ethical and moral principles.
Among the GCC countries, Oman a relatively new entrant in the sector has been highly successful in achieving a high level of Islamic banking penetration higher than countries with a far longer history of Islamic finance. Despite only permitting Islamic financial services since the end of 2012, the sector has since seen the creation of two new stand-alone Islamic banks and six Islamic “windows”, in conventional banks. The sector has gone from zero to an aggregate of around 10 per cent of banking system financing assets as of June 2016.
With the improved reach of Islamic banking, in many markets the gap between Islamic and conventional retail offerings are narrowing. “In many core markets such as the UAE, Malaysia and Bahrain, the gap between Islamic and conventional product offerings have narrowed substantially. In these markets Islamic banks have been offering matching Islamic products to customers,” said Ali Allawala, Head Islamic Banking-Retail Client.
