Global growth of the Islamic finance market has continued unabated this year, undeterred by the uncertain recovery elsewhere in the world’s financial markets. Standard & Poor’s Ratings Services believes that worldwide, Sharia-compliant assets--which we estimate at upward of $1.4 trillion--are likely to sustain double-digit growth in the coming two to three years.
Despite more than a decade of heady growth, the industry is still in a formative stage. But we believe it’s only a matter of time before it achieves critical mass, as the pool of assets broadens and deepens, and enhances liquidity. Nevertheless, the speed at which the industry matures and joins the mainstream comes down to how market participants address a classic imbalance between supply and demand.
Islamic finance remains a demand-driven market, with scarce supply, still hampered by a limited range of Islamic financial centers and their variously regulated environments. In our view, expansion and enhancement of existing centers, and a more transparent regulatory environment could build the momentum for the growth needed to break into the mainstream.
We believe that regulatory efforts to accommodate Islamic finance and the establishment of additional industry bodies at national levels will take center stage starting in 2014. Interestingly, newcomers in the industry—such as Oman, Turkey, and Nigeria, for instance—have started to trace the footsteps of fastgrowing
pioneers, such as Malaysia. Right behind the newcomers, a long line of countries is aspiring to enter the market, with the continent of Africa in the forefront.
Then, too, the gradual building out of local and regional regulatory frameworks and establishment of standards ought, in our opinion, to minimize the barriers that are preventing the industry from achieving its full potential. Globally accepted standards, we believe, are necessary for growth of the industry. In this respect, we believe that the two regional heavyweights and pioneers of the industry—Asia (most notably
Malaysia) and the Gulf Cooperation Council (comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates)—are set to lead the way. Aspiring regional champions—such as Turkey—may also help foster a more systematic approach to channeling and shaping growth in Islamic finance.