Islamic finance and wealth management remain resilient amid pandemic

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Sukuk is expected to maintain its position as a major growth engine for the Islamic finance industry.

Alpen Capital (ME) Limited and Alpen Asset Advisors Limited have announced the publication of their report on Islamic finance and wealth management.

The report provides an overview of the global Islamic finance and wealth management industry and presents a market overview, as well as an outlook on the impact of COVID-19 on the industry. The report also covers the various instruments driving the market along with demand drivers and challenges, emerging trends and industry outlook.

The report was launched at Nasdaq Dubai during a panel discussion with Dr Amin Fateh, Managing Director, Minhaj Advisory and Member, Shari’ah Board, Alpen Capital and Alpen Asset Advisors; and Hameed Noor Mohamed, Executive Director of Open Capital (ME) Limited, moderated by Tahir Mahmood, Head of Business Development at Nasdaq Dubai and DFM.

“The Islamic finance and wealth management industry faced the double shock of pandemic adjustment and low oil prices in 2020. While the industry slowed down in the year after Having experienced record growth in 2019, it has shown resilience and total Islamic finance assets in 2020 are estimated to match the figures for the previous year. The adoption of technology has become one of the most critical survival engines. The adoption and integration of new and emerging technologies are likely to streamline the Islamic finance market and expand service offerings. The IMF’s optimistic outlook on the global economic recovery should spur a recovery in the sector, ”said Sameena Ahmad, Managing Director of Open Capital (ME) Ltd.

“Sukuk is expected to maintain its position as a major growth engine for the Islamic finance industry. Sukuk has had record shows over the past year, and it should continue. Concepts such as ESG / sustainable investing and the green sukuk are also gaining in importance and attracting investor interest. The sector has also seen strong M&A activity in the banking and takaful sectors, and consolidation is expected to continue in a weak economic environment, ”said Hameed Noor Mohamed, Executive Director of Alpen Capital (ME) Ltd.

COVID-19 has disrupted global financial markets on an unprecedented scale, and the impact has tested the resilience of Islamic finance markets to an equal extent. Factors such as the growth of the Muslim population seeking Sharia-compliant financial instruments, the increasing adoption of technology, and the industry’s ability to demonstrate a higher level of ethical credibility have spurred the growth.

Islamic banking accounts for the majority of the total global assets of the Islamic finance industry. The segment has grown at a steady pace and the share of Islamic banking assets as a percentage of total banking assets has continued to grow year on year.

In 2020, Islamic banking assets recorded a higher percentage of growth than conventional banking assets in some economies like UAE, Saudi Arabia, Oman, Kuwait and Malaysia.

The global sukuk market has grown tremendously over the years and in 2019 it contributed to 19% of the global Islamic finance industry. Despite initial concerns about the impact of the pandemic on Islamic capital markets, sukuk issuance in 2020 equaled levels seen in 2019.

In the fast-growing Islamic fund segment, investments in Sharia-compliant stocks provided better protection against downside risk during the pandemic – the two factors contributing to the outperformance of Sharia-compliant indices were the sector allocation (overweighting in the technology and healthcare sector) and the exclusion of highly leveraged companies.

Alpen Capital and Alpen Asset Advisors expect the Islamic industry to continue to grow thanks to strong engines. The IMF predicts that the world economy will rebound and accelerate at a rate of 6.0% in 2021, followed by growth of 4.4% in 2022. Stimulus plans, fiscal and monetary easing and liquidity support by major Islamic governments and central banks; are likely to stimulate the post-pandemic recovery and demand for Islamic finance assets.

Sukuk, as the flagship instrument of the Islamic capital market, will continue to stimulate growth. The emergence of new avenues such as green sukuk and socially responsible investing (SRI) is likely to stimulate growth. In the future, major markets in MENA regions and Southeast Asia as well as secondary markets such as Kazakhstan and Uzbekistan may see higher emissions,

While the global Muslim population remains one of the most important growth engines for the Islamic finance industry, the global trend towards ethical consumerism is leading to an increased appeal of Islamic products. This rise is likely to attract a new class of socially-motivated consumers, spilling out into higher demand for Islamic finance services and platforms.

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