Standard and Poor (S&P) has identified three accelerators that could bring double-digit growth in Islamic finance industry. The accelerators are inclusive standardisation, fintech, and ESG opportunities.
The ratings agency said that the total assets of Islamic banks in the GCC are expected to increase over the next two years. However, only two factors such as a major geopolitical tension or significant drop in oil prices could impact the growth of Islamic banks in the GCC.
Mohamed Damak, senior director & global head of Islamic Finance, Financial Institutions Ratings at S&P, told the media that, “If you look at the growth rate for 2018, it’s been at around two percent and we think that in 2019-2020, a five percent growth rate would be an appropriate assumption.”
Inclusive standardisation would simplify the process involved in issuing a conventional bond. It will also help stakeholders to effortlessly interpret legal provisions of sukuk contracts.
The rating agency believes that the second accelerator fintech can help the Islamic finance industry grow by easing payment services and providing greater accessibility to customers. That said, the third accelerator ESG opportunities will encourage the industry to establish a sustainable and socially responsible financial system.
Last year, Islamic banks in the GCC developed slower than the conventional banks for the first time in five years, the media reports said. But the ratings agency said that the Islamic banks have a strong base in terms of capitalisation, liquidity, asset quality, profitability, total assets and geography.
Indonesia demonstrated strong performance in the market. The issuance volume in the country rose from $8.9 billion in August 2018 to $19.3 billion in August 2019.