In the framework of the preparation for the 10th World Islamic Economic Forum (WIEF), which will be organised in Dubai from 28-30 October 2014, a report by the Dubai Chamber of Commerce and Industry based on a recent study by Ernst and Young stated that global Islamic banking assets have registered cumulative annual growth rate of about 16 per cent during the period 2008-2012, reflecting the radical shift from conventional financial system in favour of Islamic finance.
As the emphasis on low risk product alternatives kept the sector insulated from the financial meltdown, Islamic banking products and services have consistently gained market share in recent times, growing up to 50 per cent faster than the traditional banking sector in some markets.
The 10th WIEF, organised by Dubai Chamber and the WIEF Foundation, is set to give a new direction to the Islamic finance industry, and help consolidate efforts, share knowledge and experiences to leverage the emerging opportunities in the changing dynamics of the global economy.
The Dubai Chamber report states that there are 38 million Islamic banking customers around the world with two thirds of them in Qatar, Indonesia, Saudi Arabia, Malaysia, UAE and Turkey (QISMUT). This group was the fastest growing markets for Islamic banking in 2012, with total Islamic banking assets commanded by the QISMUT reaching about US$567 billion and registering CAGR of about 16.4 per cent over the period 2008-2012.
Among these six prominent Islamic finance countries, Saudi Arabia is the biggest market in terms of Islamic banking assets with estimated value of US$285 billion in 2013 compared to US$245 billion in 2012. The research note shows that Saudi Arabia represents about 43 per cent of the total Islamic banking assets in all the six countries. The UAE is emerging as another serious player in this sector with total Islamic banking assets growing to about US$95 billion in 2013 compared to US$83 billion in 2012 while assets in Qatar grew from US$55 billion to US$68 billion during the same period.
The Dubai Chamber research also shows that, globally, Islamic banking profit pool is projected to reach US$30.5 billion by 2018 driven mainly by higher retail focus. In 2012, QISMUT Islamic banking profit pool was estimated at US$9.4 billion and it is expected to reach US$26.4 billion by 2018.
Commenting on the findings, Ashruff Jamal, PwC Global Islamic Finance Leader, said: “A fundamental part of the global Islamic economy is the Islamic finance sector, which is witnessing rapid growth as Islamic financial institutions look to deploy their liquidity into regional and international expansion such as the acquisition of Barclay’s’ retail portfolio by Abu Dhabi Islamic Bank, and Dubai Islamic Bank’s acquisition of a 25 per cent stake in Indonesian Islamic lender Bank Panin Syariah. Another notable instance is the recent announcement of an Islamic Exim (export-import) bank which will be the only institution of its kind in the world with three unique features; it will be Sharia compliant, trade based and run largely by the private sector.”
The Dubai Chamber report, however, points out that many Islamic retail banks suffer from lower profitability than the conventional banks, mainly due to higher expenses attributed to complex products, lengthy process steps and more interfaces. It is estimated that on average leading Islamic banks posted 19 per cent lower return on equity (ROE) than comparable conventional peers. The average ROE for the top 20 leading Islamic banks is about 12.6 per cent compared to an average of 15 per cent of comparable conventional banks, it states.
The Dubai Chamber research note supports recent indications that Islamic finance is extending reach, particularly in the Middle East and North Africa (MENA) region. According to Kuwait Finance House 2013 estimates, the MENA, excluding the Gulf Cooperation Council (GCC) states, remains the focal market for Islamic finance, with US$599.4 billion in total assets, followed by GCC with US$536.9 billion assets. Interestingly, Islamic finance is also gaining ground in North America and Europe with banking assets worth US$59.8 billion and total assets reaching US$71.6 billion in 2013, reflecting the industry success in transcending barriers to gain greater market share in new areas.
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