Dubai: World Islamic finance market is set to almost double by 2020 from the current $1.81 trillion to $3.25 trillion, led by banking and Takaful assets, a study has revealed.
Commercial banking contributes to about $1.34 trillion, while $33.4 billion is contributed by takaful insurance, while sukuks contribute to about $295 billion of the world Islamic Finance market.
“It is growing at about 10 per cent per annum, with the significant concentration of wealth in Islamic banking,” said Mustafa Adel, Acting Head of Islamic Finance at Thomson Reuters, adding commercial banking assets is projected to reach $2.6 trillion by 2020.
The growth has been fuelled by banking and Takaful assets, which have grown 12 per cent and 10 per cent respectively, while sukuk and funds witnessed modest growth of 6 per cent and 7 per cent respectively.
Various countries in the Islamic finance space are very sensitive to issues like interest rates and falling oil prices, and experts reckon this could have strong implications for the emerging economies.
“The chilling effect of a toxic trifecta of macro economic risk-anaemic real sector growth, lower capital inflows, and worsening domestic finances sparked by expected US interest rates rises, would combine to create strong downward pressure on emerging economies,” stated the report, titled ‘State of the Global Islamic Economy 2015/16’.
The continued presence of significant macroeconomic and geopolitical hazards do not augur well for Islamic Finance sector. Economically many countries like Indonesia and Turkey remain fairly exposed to this damaging trifecta of low real sector growth, reduced capital inflows and impact of rising rates in the US.
As far as the falling oil prices are concerned, the situation presents a broader dilemma for various Islamic countries, on how they would maintain their long term public spending without impacting its fiscal sustainability.
“With the Islamic economy, we are utilising Dubai competencies in general, as it is a well developed trade hub, it has well developed physical and regulatory infrastructure,” said Abdulla Mohammad Al Awar, chief executive of Dubai Islamic Economy Development Centre.
“Our concentration is on creating synergies within sectors, like for example finance is used to fuel growth in Halal, tourism, etc, and that’s the ultimate goal,” he added.
But with this comes many challenges, experts said.
“Companies are not able to tap the global Muslim market because standards and regulations vary significantly. That obviously is a challenge, but there is a huge opportunity as well that exist within that. Countries in the Asean, GCC region is looking to developed a single standardised structure, so with that companies would be able to achieve the economies of scale as opposed to global chains,” Adel said.