Kuwait Financial Centre “Markaz” recently released the executive summary of its report on GCC Islamic Finance. In this report, Markaz analyzes the Islamic Finance Industry in the GCC, with focus Islamic Banking, Sukuk (Islamic Bonds), Islamic Mutual Funds and Takaful (Islamic Insurance) domains. In addition, it discusses the growth drivers, regulations, challenges and future outlook for the industry.
Markaz report notes that at the end of 2012, Assets-Under-Management (AUMs) in the Islamic finance industry had reached USD 1.76trillion mark, growing at a CAGR of 24.8% per annum in the preceding four years. The Islamic Finance sector majorly comprises of Islamic Banking, Sukuk (Islamic Bonds), Takaful (Islamic Insurance) and Islamic Mutual Funds. The sector also includes Islamic real estate, Sharia-compliant consumer credit options, and Sharia compliant Project Finance.
Islamic Finance worldwide has witnessed a phenomenal growth over the last decade. The Islamic Finance industry reached about USD 434billion in size, in the GCC, for the year ending 2011, up by about USD 62billion from 2010. The Islamic banking industry in the GCC constitutes about 28.7% of the assets and registered a growth of 14% over 2011. The global Sukuk issuances increased 64% increase from 2011. The GCC Sukuk issuances reached about USD 37.5billion owing to huge demand for this market in UAE, Saudi Arabia and Qatar.
The report points out that global Takaful market is estimated to touch about USD 25billion by end of 2015. The Sharia compliant funds have seen significant growth, both in terms of the number of funds as well as assets under management (AUM). The Islamic funds management industry charted a 3.5% growth in 2011 and as of 2011, the GCC Islamic Funds comprise about USD 16.9billion.
A variety of factors contribute to the remarkable rise in the Islamic finance assets – growing GDP, improving economic environment, increasing oil prices, high growth in global Muslim population, rising Middle class society, the perception of Islamic finance being a relatively ‘risk-averse’ system and most importantly increased awareness of the concept of Islamic Finance. The rise in awareness of this form of finance has allowed for new Islamic Banks to be established and conventional banks to have opened ‘Islamic windows’ through which they offer Sharia compliant financial products. As a result of this expansion, Islamic banking customers (retail and commercial) now have access to a comprehensive suite of products, which include current accounts, mortgages, automotive loans, personal loans, working capital financing and term loans.
However, a few challenges, related to evolving standards, especially a global standard for Islamic Financial Institutions, shortage of expertise in the industry of people with knowledge about Islamic Finance, shortage of Sharia scholars, remain to be tackled. Although Islamic finance has seen rapid growth, there are limited Sharia compliant investment avenues for banks and institutions to invest on. As the GCC economies are not well diversified, there is a huge pressure to create a constant flow of new financial products that are acceptable as per Sharia norms. Furthermore, the capital markets in the GCC region are relatively underdeveloped which hinders the growth of Islamic finance in the region.
The traditional system of Islamic finance, based on the principles of Sharia, emerged as recently as in the 1970s. From being a concept popular only in the countries with Muslim-majority population, such as the Middle East and Malaysia in the 1980s and the 1990s, Islamic finance’s has expanded to gain international recognition.
About Kuwait Financial Centre “Markaz”
Kuwait Financial Centre S.A.K. 'Markaz', established in 1974 with total assets under management of over KD 888 million as of March 31st, 2013, is the leading and award winning asset management and investment banking institution in the Arabian Gulf Region. Markaz is listed on the Kuwait Stock Exchange (KSE) since 1997 under ticker Markaz.