Thomson Reuters, the world's leading provider of intelligent information for businesses and professionals, held a session today in the World Islamic Economic Forum in Jakarta, Indonesia. The session provided an outlook on the growth of the global Islamic finance industry and the broader Islamic economy. It also gave key insights from the Indonesia Islamic finance report that was recently launched at ceremony last March in Jakarta.
Islamic Finance Assets grew by 10 percent to reach $2 trillion in 2015
Islamic Finance is considered the most developed sector within the various pillars of the Islamic economy. The growth in the global industry is broadly measured by the value of Islamic Finance assets. In 2015, Islamic Finance assets were $2 trillion, with Islamic Banking representing 73 percent of these, followed by sukuk which represented 17 percent. This was based on the initial findings of ICD Thomson Reuters Islamic Finance Development Indicator (IFDI 2016) that was presented during the session. The increase in assets was driven by strong growth in all sectors -- Islamic banking, takaful, outstanding sukuk and net value of Islamic funds. According to Thomson Reuters ' projections, Islamic Finance assets are projected to grow to $3.2 trillion by 2020, with Islamic banking reaching $2.6 trillion.
Saudi Arabia, Iran and Malaysia lead Islamic banking by holding almost 65% of global Islamic assets in 2015, reflecting significant concentration within the top three countries.
Sukuk market suffers with the dearth of new issuers
The sukuk market on the other hand has struggled in the past couple of years due to the global economic uncertainty which has caused the dearth of new players. The sukuk market dropped significantly to $66 billion in 2015 (2014: $101.8 billion), a performance that was not anticipated by market players after ending 2014 on a strong note. According to the Sukuk perceptions and forecast study, the drop in sukuk market is also attributed to cessation of short terms sukuk by Bank Malaysia Negara (BNM) in Malaysia, the world's biggest sukuk market, holding approximately 50% market share.
In 2016, the sukuk market continued to struggle as a number of issuers have shifted to the bonds market for raising liquidity. However, in the past couple of months the sukuk market has become somewhat active, on the back of recent issuances from Malaysia and Turkey. As of July, 2016, the sukuk market has relatively picked up to stand at $38.7 billion, although remains slightly below 2015 levels of $40.9 billion. The amounts issued so far are in line with our forecasts in our last year's sukuk report. Our supply and demand model expects the total issuance to be around $70 billion by end of 2016. The outlook remains positive with new countries announced to issue next year such as Kenya and South Africa among other existing countries.
Indonesia Islamic Finance: Prospects for Exponential Growth
Thomson Reuters also shared some of the key findings from their Indonesia Islamic Finance Report titled "Prospects for Exponential Growth". The study, prepared in collaboration with the Islamic Research and Training Institute (IRTI), an affiliate of the Islamic Development Bank Group, and in strategic partnership with CIMB Islamic Bank, was launched in March 2016.
The presentation highlighted how Indonesia's vast natural resources and strategic geographic location, offers great potential for economic growth, and an array of opportunities for the Islamic finance industry. Unlike other countries, the Islamic finance industry in Indonesia has largely been built up on community based initiatives. This has led to the development of unique features such as the presence of rural Islamic banks, retail sukuk, Hajj funds and various innovative social finance initiatives.
Now with the government making the development of the Islamic finance industry a key pillar in their overall economic growth strategy, the industry is expected to grow into a strong and sustainable sector of the financial services industry, while still maintaining many of its unique products and services. The government is expecting this to drive up the market share of Islamic banking from 5 percent today to 11 percent by 2020.
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© Press Release 2016
