Islamic finance growth to slow

29 September 2015

Lower oil prices and potential hike in interest rates to curb exponential growth

  • Islamic finance sector growth projected to slow to 9.8 per cent a year until 2020
  • Sector could double in size to reach $3.25 trillion by 2020, mainly in commercial banking assets

The growth of the Islamic finance sector is expected to slow to an average of 9.8 per cent a year or less up to 2020, according to the Dubai Islamic Economic Development Centre (DIEDC).

Lower oil prices, the possibility of interest rates hikes by the US Federal Reserve and the prospects of weaker macroeconomic growth in the GCC will end the double-digit growth in the sector over the past few years.

The size of the Islamic finance sector will still double by 2020 to $3.25 trillion, DIEDC says. It is currently worth $1.85 trillion, with commercial banking making up $1.34 trillion, takaful insurance contributing $33.4bn and sukuk (Islamic bonds) $295bn.

Sharia-compliant commercial banking assets, which have been growing at 12 per cent a year, are projected to reach $2.6 trillion by 2020.

However, the Islamic economy is still hampered by a lack of unified standards and structures. This problem will be exacerbated when financial sanctions on Iran are lifted, which could happen in 2016. Iran’s $558bn, completely sharia-compliant finance sector has slightly different regulations, but should give a significant boost to the industry.

Iran is expected to issue $300m in sovereign sukuk.

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