Islamic finance is growing on all fronts: in terms of the value of funds under management; in terms of the range of products offered; and geographically, in terms of the number of international markets involved. Broadly speaking, it is outperforming the conventional banking and financial services sectors but the lack of agreed international rules on exactly what constitutes Islamic banking is proving something of a stumbling block. Another problem is the weakness of any secondary markets, as financial products cannot be traded for anything other than their issue price without incurring interest. The sector is performing well but could do significantly better.
The industry is certainly maturing in terms of customer expectation and industry experience. In addition, non-Muslim majority countries are becoming increasingly comfortable with Islamic banking, as exemplified by the British government’s first £200m sukuk issue. However, it is the buoyancy of many Gulf economies that is the sector’s engine. Qatar and the UAE among others have plenty of money to invest and are constantly on the look-out for new investment targets. Islamic finance, whether in their own countries or elsewhere in the world, neatly fits the bill. It is this liquidity that is driving sukuk issuance by the UK and other non-Muslim majority states.
In this months edition of the magazine Neil Ford’s special report looks at the challenge of new horizons and the growth of Islamic finance in the world today.