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Islamic Finance Growth to Slow Over Low Oil Prices

by AFP
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Standard and Poor’s says growth will likely be in single digits in 2016, compared to 10-15 percent over past decade.

The fast-growing Islamic finance industry is set to slow down next year over the sharp fall in oil revenues and rapid regulatory changes, Standard and Poor’s Ratings Services said on Monday.

“We think Islamic finance growth will drop to single digits in 2016 from between 10 percent and 15 percent over the past decade,” S&P said in a report. The agency said that such rapid growth had seen the Islamic finance industry exceed an estimated $2 trillion in value. “But we now think the industry faces challenges from the decline in oil prices, changes in the global regulatory framework for banks and insurance companies, and its own fragmented nature,” said S&P Global Head of Islamic Finance Mohamed Damak.

S&P expects the size of Islamic finance to hit $3 trillion sometime in the next decade although the shariah-compliant industry was projected to hit the landmark much earlier. Governments in core markets see Islamic finance as a tool to maintain their investment spending, somewhat countering the negative impact of oil prices on their budgets, the report said.

Islamic finance bans interest, products with excessive uncertainty, gambling, short sales and financing prohibited activities considered harmful to society.

Around 40 million of the world’s 1.6 billion Muslims are clients of the Islamic finance industry, which has surged in popularity since its niche market days of the early 1970s. Islamic finance’s risk-sharing features and prohibition of speculation suggest that it may, in principle, pose less systemic risk than conventional finance, the International Monetary Fund said in June.

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