The $2.2 trillion global Islamic finance industry is expected to grow 10-12 per cent during 2021-2022 due to the increased Islamic bond issuance and a modest economic recovery in the main Islamic finance markets, S&P Global Ratings has said.
The industry continued to grow last year despite the COVID-19 pandemic, although at a lower pace than in 2019, with global Islamic assets expanding by 10.6pc in 2020 against the growth of 17.3pc the previous year.
Islamic finance, which bans interest payments and pure monetary speculation, has been on the rise for many years across markets in Africa, the Middle East and Southeast Asia, but it remains a fragmented industry with the uneven implementation of its rules.
“Over the next 12 months, we could see progress on a unified global legal and regulatory framework for Islamic finance…we believe that such a framework could help resolve the lack of standardisation and harmonisation that the Islamic finance industry has faced for decades,” S&P said on Monday.
The industry is expected to receive some support in the coming two years in Saudi Arabia, where mortgages and corporate lending are expected to rise as the country pushes ahead with plans to diversify the economy.
The ratings agency forecast global issuance of Islamic bonds, or sukuk, to reach $140-155 billion this year, up from roughly $140 billion in 2020, thanks to abundant liquidity and sustained financing needs among corporates and governments.
S&P also highlighted that the full impact of the coronavirus crisis has yet to materialise and more requests for sukuk restructurings and maturity extensions, as well as higher default rates, are expected this year.
The S&P expects financing growth in Saudi Arabia to remain strong, fueled by mortgages and by corporate lending as the country implements some of its Vision 2030 projects.
“We also expect some growth in Qatar supported by investments related to the upcoming World Cup, and to a lesser extent the United Arab Emirates (UAE) where the Dubai Expo is likely to help boost economic activity.”
The rating agency also predicts that Malaysia and Turkey will also continue to grow, although Turkey’s growth will be at a slower pace and driven primarily by public sector participation banks.
On the sukuk front, S&P Global Ratings forecasts total sukuk issuance of about $140-$155 billion this year. This compares with a drop in issuance to $139.8 billion in 2020 from $167.3 billion in 2019.
“We expect an increase in the volume of issuances this year as liquidity remains abundant, corporates and sovereigns come back to the market, and new issuances exceed maturing sukuk,” the statement said, adding that 5 to 10 per cent growth in the Takaful sector is also likely.