Sukuk Issuance: A Key Growth Catalyst for the Islamic Finance Sector

Welcome to the world of Islamic Finance Growth where the principles of Sharia-compliant finance intersect with the dynamic forces shaping the global financial landscape. Despite the global economic slowdown triggered by the COVID-19 pandemic, the Islamic finance industry has demonstrated remarkable resilience, with Sukuk issuance emerging as a significant growth propellant. This trend is anticipated to persist, as indicated by recent research.

Alpen Capital (ME) Limited and Alpen Asset Advisors Limited, in their latest report, highlighted that the Islamic finance sector maintained its momentum in 2020, mirroring the asset figures of the previous year, despite the challenges posed by the pandemic and plummeting oil prices.

Sameena Ahmad, Managing Director at Alpen Capital (ME) Ltd, emphasized the sector’s adaptability in the face of these dual shocks. She pointed out the critical role of technology adoption in ensuring the industry’s survival and future growth. The integration of emerging technologies is set to streamline the Islamic finance market and expand its service offerings. Ahmad also expressed optimism about the sector’s recovery, citing the International Monetary Fund’s positive outlook on global economic recovery.

Hameed Noor Mohamed, Executive Director at Alpen Capital (ME) Ltd, underscored the role of Sukuk as a primary growth driver for the Islamic finance industry. He noted the record-breaking Sukuk issuances over the past year and predicted a continuation of this trend. Mohamed also highlighted the growing interest in concepts such as ESG/sustainable investing and green Sukuk.

The report also noted the strong merger and acquisition activity in the Islamic banking and Takaful sectors, predicting further consolidation in light of the challenging economic conditions.

The global disruption caused by COVID-19 tested the resilience of Islamic finance markets. However, factors such as a growing Muslim population seeking Shariah-compliant financial instruments, increasing technology adoption, and the industry’s ability to uphold ethical credibility have fueled its growth.

Read this: What Are the Top 5 Factors Driving Islamic Finance Growth?

Islamic banking, contributing the lion’s share to the total global Islamic finance industry assets, witnessed a higher growth percentage compared to conventional banking assets in select economies like the UAE, Saudi Arabia, Oman, Kuwait, and Malaysia in 2020.

The report also highlighted the significant development of the global Sukuk market over the years, contributing 19 percent to the global Islamic finance industry in 2019. Despite initial pandemic-related concerns, Sukuk issuances in 2020 matched the levels seen in 2019.

Alpen Capital and Alpen Asset Advisors anticipate the Islamic industry’s continued growth, driven by emerging avenues such as green Sukuk and socially responsible investing (SRI).

The report also predicts increased issuances in core markets across the MENA and SE Asia regions, as well as non-core markets such as Kazakhstan and Uzbekistan.

The global trend of ethical consumerism, coupled with the growing global Muslim population, is expected to increase the appeal of Islamic products, attracting a new class of socially conscious consumers and boosting demand for Islamic financial services and platforms.

The report also highlighted the measures taken by governments worldwide to support the Islamic FinTech ecosystem, encourage banks’ digitalization, promote Sukuk tokenization, and bolster emerging markets such as Islamic social finance and ESG.

The COVID-19 pandemic underscored the Islamic finance industry’s vulnerability to external risks. Despite this, the industry has responded swiftly and effectively, positioning itself for recovery and growth.

The report concluded that the next growth wave for the Islamic finance industry is likely to be driven by innovation, standardization, and M&A activity, with a particular focus on the FinTech sector due to the increased importance of digital capabilities in the wake of COVID-19.