By Arm Adel

Dubai-Mubasher: Islamic finance industry will see modest growth in 2016 compared to the past couple of years, chiefly because of the current less supportive economic environment in the industry’s two major growth engines, Malaysia and the GCC, Standard & Poor’s (S&P) has stated in a recent report.

The global agency said 2015 – 2016 will be a crossroads for Islamic finance, adding that a few major factors are shaping the industry’s growth and trends.

Headwinds include the possible negative impact of much lower oil prices and the prevailing low interest rates in most major developed countries. Offsetting these negatives are factors such as advancements in standardization for Islamic finance products that could attract new players, the potential lessons for the industry from bank resolution regimes in conventional finance, and the benefits from implementation of Solvency II for many insurance companies in 2016.

The Islamic finance industry’s current and expected trends, and the increasing role of regulation and the way it shapes and supports market development will be a particular focus of the 4th Annual Islamic Finance Conference to be hosted by S&P in Dubai on 6 October, 2015.

“In our view, after 20 years of solid growth, the industry has achieved a critical mass that enables it to face increasing headwinds. Still, the reality of declining oil revenues could start to take a toll on governments’ budgets and economic growth in core markets for Islamic finance,” said Stuart Anderson, managing director & regional head, Middle East.

“Our 2015 conference will discuss the perspectives on recent market development and regulatory frameworks,” he noted.

The industry’s move toward product standardisation has accelerated over the past two years, with increasingly similar products and Sukuk structures being used across different countries. Higher standardisation could help in attracting new players, while leaving space for innovation.

Global Sukuk issuance volumes have dropped by about 40% since the beginning of 2015.

Mohamed Damak, global head of Islamic finance at S&P, said the fall stems mainly from the Central Bank of Malaysia’s decision to switch out of Sukuk to other liquidity management instruments for Malaysian Islamic banks.

“In other countries, however, Islamic finance has continued to attract significant interest, and its ethical nature is seducing some clients beyond its natural reach,” he added.  

Translated by Abdul Maguid Aboshahla