Newswrap: Islamic finance

Islamic finance sector slated for 10% growth in 2022-23; Indonesia and Islamic Development Bank ink $150 m loan for highway; Egypt delays sukuk issuance; Mobiquity releases global digital Islamic banking prototype.

Islamic finance sector slated for 10% growth in 2022-23

The $2.2 trillion Islamic finance industry is forecast to grow by 10% in 2022-23, following similar growth in total assets in 2021, according to a S&P Global Ratings report.

“This year, we think higher commodities prices will underpin a stronger recovery in many core Islamic finance markets. Moreover, most of these countries are relatively resilient to macroeconomic shocks resulting from the Russia-Ukraine conflict. This will support the industry's prospects for 2022-2023 but global headwinds could change the picture,” said S&P Global Ratings head of Islamic finance Mohamed Damak, in the Khaleej Times.

Driving growth is investors seeking Sharia-compliant investment vehicles this year. Islamic exchange-traded funds (ETFs) are set to boost global Islamic finance assets to $4.94 trillion by 2025.

The report noted that the Islamic finance industry is facing structural obstacles, notably “the complexity inherent to transactions and the correlation of performance with oil prices given concentration in commodities-exporting countries.” The preference of Sharia scholars for sukuk to have a higher proportion of profit and loss sharing is also posing certain legal challenges.

“However, we see opportunities in the alignment of certain Islamic financial products and environmental, social, and governance (ESG) factors and recent strides in digitalisation. We expect to see a higher volume of green and sustainability sukuk (from a low base) as issuers look to broaden the investor base and include funds aligned with sustainability themes. Moreover, digital sukuk could generate significant investor interest in the future once the necessary prerequisites are implemented,” said the report. “Based on these factors, we believe the market will expand about 10% in 2022-23 after 10.2% growth in total assets in 2021 (excluding Iran),” Damak said.

Indonesia and Islamic Development Bank ink $150 m loan for highway

Indonesia and the Islamic Development Bank (IDB) inked a $150 million loan to finance a toll road project on the island of Java, reported Reuters. The $450 million highway is to connect the central Yogyakarta province with the eastern city of Malang. Additional funding is to come from the Asian Development Bank.

Egypt delays sukuk issuance

Egypt was to issues its first Islamic sovereign bonds, sukuk, this financial year, to 2023, but has delayed the planned issuance, Finance Minister Mohamed Maait told Ahram Online.

The minister said that the government had not set a value on the issuance, and that the sukuk are not commercial bonds but meant to address Egypt’s budget deficit as well as attract new investors.

“Sukuk issuance needs great efforts as these kind of bonds are an unconventional way to secure finance. It needs capital, investors, capabilities and a suitable infrastructure,” the minister said at the 47th annual meetings of the Islamic Development Bank (IsDB) in Sharm El-Shiekh.

Mobiquity releases global digital Islamic banking prototype

Mobiquity, part of Hexaware, a full-service digital transformation enabler, has launched a global digital Islamic banking MVP (minimum viable product) for the Muslim community, reported FinExtra. The Sharia-compliant demo - front-end solution- enables financial institutions to enhance their offerings and deliver personalised, ethical digital Islamic banking to their customers. Focusing on Murabaha car finance, the application is core banking platform agnostic and can be integrated and extended with any of the bank's systems
Mobiquity recognises the potential to evolve and serve the Islamic finance sector by provisioning for Islamic banking, particularly in the Middle East, Asia, Africa and parts of Europe where there is a strong Islamic community.
“The future of Islamic finance is disrupting traditional models as more people, particularly the younger generation, seek banking solutions that meet religious needs and encourage an ecosystem of fair, ethical and moral responsibility. Mobiquity creates a global digital Islamic banking MVP that prioritises social and ethical consciousness” said Matthew Williamson, VP Global Financial Services, Mobiquity. “Millennials make up a large percentage of Islamic banking customers. The UK has experienced the highest growth in Islamic fintech companies demonstrating the need to optimise this sector to meet customer expectations. To meet customer expectations, Islamic fintechs worldwide need to use technology that enables flexible banking solutions to suit their customers’ lifestyles. Customers increasingly want digital banking that they can trust and that are convenient to use,” he said.