Global Islamic Finance industry in 2021
We expect the Islamic finance industry to show low-to-mid-single-digit growth in 2020-2021 after 11.4% in 2019 following strong sukuk market performance.
COVID-19 offers an opportunity for more integrated and transformative growth with a higher degree of standardization, stronger focus on the industry’s social role, and meaningful adoption of financial technology (fintech).
Coordination between different stakeholders is key to the industry leveraging these opportunities for sustainable growth.Recession and Mild Recovery thereafter Will Hold Growth through 2020-2021
Fintech Will Enhance the Industry’s Resilience.
Streamlining Sukuk Issuance will restore its attractiveness.
The significant slowdown of core Islamic finance economies in 2020, because of measures implemented by various governments to contain the COVID-19 pandemic, and the expected mild recovery in 2021, explain the expectations.
It estimates global Islamic finance assets, covering banking, sukuk, takaful, and funds, that were $2.4 trillion in 2019.
ISLAMIC BANKING- It is expected that Islamic banking, which is the biggest component of the global industry, to show “at best stable total assets or low-single-digit growth” after 6.6% increase in 2019.
The COVID-19 pandemic will halt growth at GCC Islamic and conventional banks in 2020 as they focus on preserving asset quality rather than business expansion.Shariah-compliant banks are likely to see a greater effect on asset quality indicators since they typically have a higher proportion of exposure to real estate and cannot charge late payment fees.
It is expected that lending growth would remain significantly slow in 2021 (First half).
SUKUK- Explaining about outlook on sukuk, which is the second largest component of global Shariah-compliant financial assets, core Islamic finance countries using the instrument as a primary source of funding would remain low despite their higher financing needs amid the economic downturn caused by the pandemic. The volume of issuance will reach $100 billion in 2020 compared with $162 billion in 2019–when Turkey, returning GCC issuers, Malaysia, and Indonesia supported the market.
Corporates will also not support a rise in sukuk this year neither in 2021 as they hold on to cash, cut capital expenditure and turn to bank financing.
The industry might see much higher default rates among sukuk issuers, especially those with low credit quality or business plans that depend on supporting economies and market conditions.
TAKAFUL, FUNDS- After thetakaful sector expanding at mid-single-to-high-digit ratesthe industry might see some negative effects from market volatility in 2021.
SILVER LINING- Social Islamic Finance Instruments can make a difference, Islamic social finance instruments include qardhassan, social sukuk, waqf, and zakat. They can help core Islamic countries, banks, and corporations to navigate the current challenges in 2021.