KUALA LUMPUR – Asia specifically East and Southeast Asia have the potential to drive the expansion of the Islamic finance industry, said Sultan of Perak Sultan Nazrin Muizzuddin Shah.
He said based on the potential the region will contribute to more than 50% of global growth through 2018.
“Looking forward, the outlook is even more encouraging. On average, it is expected to grow almost twice as fast as the rest of the world over the next decade. The expansion of Asia’s middle class population will be a vital growth driver,” Sultan Nazrin, who is also the royal patron for Malaysia’s Islamic Finance Initiative, said in his opening remark at the 11th Kuala Lumpur Islamic Finance Forum 2014 here yesterday.
He said by 2030, the Organisation for Economic Co-operation and Development (OECD) projects that Asia will account for 66% of global middle class consumption, rising more than six times to 3.2 billion people from 525 million in 2009.
Combined with high savings rates and rising wages, he said there is significant long-term potential for the expansion of consumption.
By end 2014, he said the number of high net-worth individuals in the region is expected by some analysts to surpass those in North America and Europe.
“Infrastructure financing, in particular, is going to be very important and is exceptionally suited for Islamic finance. As is well-known, infrastructure financing is large and potentially lucrative but also very challenging,” he said.
“Apart from counter-party risks, the others typically associated with these kinds of projects include risks emanating from suppliers, construction, currency mismatches, duration and demand. With the concepts of risk and reward-sharing firmly built into Islamic project financing, it would seem exceptionally suited to the region,” he added.
Sultan Nazrin pointed out that Indonesia has vast untapped potential with Islamic banks accounting for only 5% of all banking assets.
Growth rates have been very high of late, reported to average 35% per annum from 2010-2013, he said, adding that the Indonesian government is embarking on a five-year roadmap that should see this potential substantially realised. -Sundaily