In the executive summary of its report on GCC Islamic Finance, Kuwait Financial Centre “Markaz” notes that at the end of 2012, assets under management (AUMs) in Islamic finance reached $1.76 trillion, growing at a CAGR of 24.8 per cent per annum in the preceding four years.
The Islamic finance industry reached about $434 billion in size, in the GCC, for the year ending 2011, up by about $62 billion from 2010. The Islamic banking industry in the GCC constitutes about 28.7 per cent of the assets and registered a growth of 14 per cent over 2011. The global Sukuk issuances increased 64 per cent increase from 2011. The GCC Sukuk issuances reached about $37.5 billion 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 $25 billion by end of 2015. Shari’ah-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 per cent growth in 2011 and as of 2011, the GCC Islamic Funds comprise about $16.9billion.
A variety of factors contribute to the remarkable rise in the Islamic finance assets, said Markaz, including 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’.
However, Markaz also notes there are challenges, relating 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 Shari’ah scholars. Although Islamic finance has seen rapid growth, there are limited Shari’ah-compliant investment avenues for banks and institutions. 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 Shari’ah norms. Furthermore, the capital markets in the GCC region are relatively underdeveloped which hinders the growth of Islamic finance in the region.
*This article was published by CPI Financial. Read the original article here.