The Growth of Islamic Banking
This article was published in Acquisition International.
In an increasingly globalised landscape, Islamic finance is beginning to play an increasingly important role in strengthening economic inter-linkages between key nations in the Organisation of Islamic Co-operation and beyond. Islamic finance activities continue to venture beyond national boundaries and the industry’s international growth is now stronger than ever, according to banking experts.
The dynamic pace of innovation in the global Islamic finance industry has widened the range of financial products and services available to the global audience, thereby significantly increasing its appeal. In the aftermath of the economic crisis, the global economy is on its quest for a financial system that promotes sustainable growth providing tremendous potential for Islamic finance.
Acquisition International spoke to experts in Islamic banking to discuss this growing area of finance.
Andrew Quinn explains that 2012 was another strong year for Islamic Banking, with the value of Shariah compliant assets under management reaching approximately 1.3 trillion U.S. dollars globally.
"The market for Islamic fixed income products, namely sukuk, made a return, particularly in the Middle East with issuances by several banks and, for the first time, an issuance by a bank to raise tier 1 capital," he explains. "There was also positive news in Ireland, with a number of announcements providing a further boost to Ireland’s growing Islamic Finance sector. August 2012 heralded the news that Ireland had attracted its first fund promoter from Malaysia. This was soon followed by the announcement in November 2012 that Armanie Advisors, a global Islamic capital markets advisory firm, was to set up an Irish operation in Dublin’s Financial Services Centre."
Maples and Calder, with offices in the Cayman Islands, Ireland and the BVI, has continued to see a growth in Shariah compliant investment funds. Already the locations of choice for hedge funds and private equity funds, there has been a wave of investment funds looking to offer Shariah compliant investment opportunities to Islamic investors.
There are a number of factors which have combined to make Islamic Finance one of the fastest growing sectors of finance in the world.
"Firstly, the liquidity in the Middle East resulting from many years of high oil prices, but also the economic growth in Islamic countries such as Malaysia and Indonesia, and the aggressive investment strategies of sovereign wealth funds and Islamic institutions in the Islamic world" says managing partner Tahir Jawed.
There are challenges for Islamic finance which still remain, Quinn explains "Many of the financial products are closely linked to conventional products and in many cases the allocation of risk between investor and borrower are not as many Islamic scholars would like."
When choosing between Islamic Finance products and conventional banking products, the cost and quality of the products can often be a deciding factor. Therefore, the importance of having a level playing field to allow Islamic Finance to complete with conventional banking in new countries cannot be underestimated.