Islamic finance has been performing strongly despite the double shock from the pandemic and unstable oil prices. Supported by the global economic recovery and sukuk issuance of US$252 billion in 2021, the sector is poised for another year of robust growth.
The demand for sukuk remains strong as investors seek higher returns from emerging market debt amid the low interest rate environment. The trend is expected to narrow the demand-supply gap in the sukuk market by 2026. On the corporate side, the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has issued new standards for financial reporting that could affect sukuk issuance. On the other hand, M&A activity in the Gulf Cooperation Council’s Islamic banking sector is expected to increase as many Islamic banks are looking to strengthen their competitive advantage particularly in pricing, cost of funding and growth opportunities.
Driven by the pandemic, digitalization and fintech collaboration are enabling the industry to innovate – connecting issuers, investors and intermediaries to access existing and new markets more efficiently. The growing appetite for retail sukuk on digital platforms has increased significantly. In addition, the launch of digital banks in the traditional Islamic market is gaining momentum especially in Malaysia and Saudi Arabia. Investors are also looking at investing in disruptive technology, which could pave the way for opportunities in green tech and sustainable finance.
Islamic finance is closely aligned with the ESG-based approach to investing. The industry is well-positioned to support the goals of the United Nations Sustainable Development Goals (SDGs), especially the target to achieve carbon neutrality by 2050. A report by the United Nations Development Programme and the Islamic Finance Council UK estimates that US$30 billion to US$50 billion of capital can be raised through green and sustainability sukuk by 2025. This will unlock investment opportunities and provide a significant portion of the US$100 billion climate finance required for developing countries.
The Asset Events+ presents the 5th Global Islamic Finance Issuers and Investors Leadership Dialogue. The exclusive dialogue brings together investors, policymakers, economists, and industry players to discuss various key issues and developments in the sector.