KUWAIT, Sept 16 (KUNA) -- The Islamic finance industry has great potential
for global expansion after achieving the most rapid growth among global
financial services sectors, a specialized economic report showed Sunday.
"The total value of Islamic financial assets is expected to reach USD 1.6
trillion this year, and the financial sector is expected to continue its
robust growth in 2013," reads a report released by Kuwait Finance House
Research (KFHR) Sunday.
"(This expansion) is underpinned by: an increase in the demand for
Shariah-compliant assets and an active role played by some jurisdictions
around the world to promote the development of Islamic financial markets in
their respective countries."
The KFHR also noted that the flexibility of Islamic banks during global
financial crisis has supported its global growth.
"Islamic banks demonstrated great resilience during the global financial
crisis, despite the turmoil which unfolded across the world's financial
markets. While the equity, mortgage and insurance markets suffered huge
financial losses post-US property market bubble burst, the balance sheets of
Islamic banks emerged relatively unscathed as compared to their conventional
The report attributed the resilience of the Islamic banks to usually safe
financial products and the consumers' loyalty.
"Credit portfolios were essentially domestic rather than foreign, with
limited pressure on asset quality; high consumer loyalty and deposit stability
limited the possibility of massive bank runs and high capitalization and ample
liquidity provided relatively higher levels of confidence to counterparts,"
the reads the report.
The report underlined that the sukuk market has evolved as a major
contributing factor driving the internationalization of Islamic finance.
"For the past 30 years, Islamic finance has been largely domestic driven,
though in recent years it has gradually become the fastest growing segment of
the international financial system. The sukuk market in particular has evolved
as a major contributing factor driving the internationalization of Islamic
finance, becoming an important avenue for international fund raising and
investment activities, generating significant cross-border flows."
It added that the internationalization of Islamic finance has been
facilitated by further developments of the international Islamic financial
infrastructure, prompting Islamic financial institutions to venture beyond
their domestic borders.
"Today, there are more than 600 Islamic financial institutions operating in
more than 75 countries, offering a wide range of products and services. With
the internationalization of the industry, Islamic finance is expected to
contribute to the more efficient mobilization and allocation of funds across
regions. This trend will strengthen the international financial and economic
linkages between jurisdictions, bringing mutual benefits to all stakeholders."
Data showed that the Islamic finance Industry has grown at a strong rate of
15.0 percent-20.0 percent annually over the past decade, from approximately
USD150.0 billion in the mid-1990s to an estimated USD1.1 trillion in 2011.
The report went on to say that "Based on a compound annual growth rate
(CAGR) of 21.1 percent between 2007 and 2011, the Islamic banking assets are
expected to grow to USD1.3 trillion in 2012, accounting for more than 80.0
percent of global Islamic finance assets market share.
It also stressed that the Islamic banking industry is not only confined to
Muslim majority countries, but also into new territories within Central Asia
"At the end-2011, there are 363 full-fledged Islamic financial institutions
and a further 108 conventional financial institutions operating an Islamic
window. Although the Islamic banking industry currently constitutes only 1.6
percent of the total assets of the top 50 largest banks in the world (totaling
USD66.2 trillion at the end-2011), it remains one of the fastest growing
segments in the global financial services sector."
The Islamic banking industry is expected to witness further developments in
the future, particularly in terms of the development of new products and
services as well as the opening up of new markets or jurisdictions, in light
of the industry's resilience during the global financial crisis.
"In 2011, the Islamic banking industry witnessed robust growth. Whilst
approximately 80.0 percent of Islamic banking assets are in the Middle East,
Asia represents a significant market with Malaysia having the largest market
share of 9.6 percent. In terms of growth rate, Indonesia witnessed the
strongest growth of 48.6 percent y-o-y, followed by Pakistan (34.4 percent
y-o-y)," the report added.
The KFHR also forecasted a remarkable growth in the Islamic banking
industry in the Gulf Cooperation Council member states in the coming years.
"The GCC is home to some of the world's largest Islamic banks such as
Al-Rajhi Bank in Saudi Arabia and Kuwait Finance House in Kuwait. The increase
of Islamic banking activities in the GCC attributed to a number of factors
which include an increasing domestic demand for Islamic financial products
and, above all, the considerable growth of savings in the Gulf linked to oil
"It is expected that the Islamic banking industry in the GCC will continue
to grow underpinned by their strong economic fundamentals, economic stimulant
via government sponsored infrastructure projects, consolidation of Islamic
banks in certain jurisdictions (Bahrain), growing numbers of Islamic banks
(Saudi Arabia and Oman) and changes in regulation(Qatar) which will benefit
the industry as a whole."
The Islamic banking industry is also expected to witness encouraging
developments as emerging economies such as Turkey, Indonesia, India and China
promote the alternative form of financial intermediation, underpinned by the
increasing demand for alternative banking products and services.
"Despite the positive developments, moving forward the deteriorating global
economic environment, a shortage of education and product awareness in some
jurisdictions as well as legal and tax issues are some of the challenges that
will be faced by the Islamic banking industry," warned the report. (end)
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