In a recent report, the credit ratings agency Standard & Poor’s (S&P) predicted an annual growth rate of 10 percent for the global Islamic finance sector, which is valued at $3 trillion, in both 2023 and 2024.
According to the report on the sector, the Islamic Gulf states, notably Saudi Arabia and Kuwait, serve as a significant catalyst for the sector, as both countries accounted for over 90 percent of the sector’s asset growth in 2022.
Read more: S&P: Global Islamic finance to continue expansion in 2022-2023
According to the Arab News Agency (ANA), the sector experienced a growth rate of 9.4 percent in the previous year.
The report also highlighted that the expansion of Islamic investment and solidarity fund sectors is expected to persist throughout 2023 and 2024.
S&P said the sector encountered two primary challenges: the intricate nature of structural and transactional processes, which diminished its appeal beyond conventional boundaries, and the notable concentration of the sector’s assets within those boundaries.
The Agency predicted a decrease in the volume of instrument issuances (sukuk) in 2023, as access to instruments remained predominantly restricted to conventional issuers and states aiming to capitalize on all available funding alternatives. However, the report mentioned that the number of new issuances would surpass those that were due.
Moreover, the report indicated that the sector was exploring strategies to enhance its competitiveness and appeal, differentiating itself from the conventional debt instrument market. This includes streamlining procedures and product offerings to attract new participants. The agency emphasized the significance of Vision 2030’s implementation in Saudi Arabia and the sustained expansion of mortgages in supporting the sector’s performance in 2022. It also anticipated that the Saudi banking system would continue to play a substantial role in driving the growth of the Islamic finance industry.
COP28 impact on sukuk issuances
In a relevant context, S&P anticipates that COP28 will have a favorable effect on sustainable financing and will facilitate the issuance of environmentally friendly or green sukuks. This is attributed to the fact that it will showcase the potential of Islamic finance in terms of Islamic instruments and sustainable Islamic banking.
Mohamed Damak, senior director, financial services at s&p global, spoke to the Emirates News Agency (WAM) during the 13th Annual Islamic Finance Conference organized by the S&P and held at the Dubai International Financial Centre (DIFC). The conference provided a platform for Damak to state, “In the first nine months of this year, the issuance of sustainable instruments has doubled to approximately $8 billion, compared to around $4 billion during the same period last year.”
The correlation between COP28 and the issuance of sustainable sukuks stems from the fact that a significant portion of these issuances originates from the region, particularly the UAE and Saudi Arabia, he added.
It was projected that sukuk issuances in 2023 would range between $150 billion and $170 billion, with green and sustainable instruments accounting for a relatively small proportion. However, there was anticipated significant growth in the issuance of sustainable versions.
Furthermore, Damak noted, “The Islamic finance sector, valued at $3 trillion, has maintained its growth trajectory and is projected to grow by approximately 10 percent annually in both 2023 and 2024, just as it did in 2022.”
For more news on banking & finance, click here.
