Despite the slower growth, total assets across the industry grew to RM10.3t in 2018 from RM10t previously

by HARIZAH KAMEL / pic by BLOOMBERG

ISLAMIC finance industry growth slumped to 3% in 2018 from the previous year’s 7%, marking the second-slowest expansion after 2014 since the Islamic Finance Development Indicator (IFDI) report was introduced in 2012.

The slowdown in 2018 reflected the downtrend in three industry-leading markets, namely Iran, Saudi Arabia and Malaysia, according to the Islamic Finance Development Report 2019.

The three countries, all of which have Islamic finance assets over US$500 billion (RM2.04 billion), accounted for 65% of global Islamic finance assets in 2018.

Despite the slower growth, total assets across the industry grew to US$2.52 trillion in 2018 from US$2.46 trillion previously.

Malaysia’s assets grew 5% to US$521 billion in 2018, versus an 18% jump recorded in 2017.

Sukuk and Islamic banking, which were the main drivers of growth in 2017, underperformed in 2018 while accounting for 83% of total Islamic finance assets.

“This is particularly true of sukuk, which jumped strongly in 2017 on the back of a surge in sovereign issuances, while the level of issuance was maintained in 2018,” the report said.

Iran’s assets slid 1% in value to US$575 billion, dragged by the continued depreciation of the rial caused by US sanctions, despite the country’s Islamic financial institutions recording a 17% jump in local currency terms.

The value of Iran’s Islamic funds also declined from 2017 although sukuk outstanding “increased significantly” in line with a rise in sukuk issuances.

In Saudi Arabia, Islamic finance assets growth slowed to 6% in 2018 to US$541 billion, compared to a 7% jump in 2017.

The slowdown of the second-largest market was attributed to a slide in Islamic funds and lower growth in sukuk outstanding.

For Saudi Arabia, the Islamic banking and takaful sectors grew although other Islamic financial institutions recorded slight declines.

Growth of total assets held by Islamic financial institutions across the industry also sank last year, with 49% of such institutions reporting a decline in assets over the year.

“Assets held by the Islamic banking sector, which holds 70% of the industry total, grew 2% to US$1.76 trillion in 2018, while those of the industry’s smallest sector — takaful (Islamic insurance) — grew 1% to US$46 billion,” the report said.

Assets owned by other Islamic financial institutions slipped 2% to US$140 billion.

Meanwhile, sukuk was the fastest-growing sector, expanding 10% as growth in sovereign and multilateral sukuk issuances to support government spending continued from previous years.

The sukuk asset class also accounted for the largest share of Islamic capital markets with US$470 billion in assets.

However, Islamic funds’ assets sank 10% to US$108 billion, largely due to negative performances in 24 of the sector’s 28 markets.

Some 84 Islamic funds were liquidated or merged during 2018, with total assets under management of US$407 million, the IFDI report stated.

On the flip side, Morocco, Ethiopia and Suriname — all new to the 61 countries that pooled US$2.52 trillion worth of global assets — were able to include assets held by newly established Islamic banks such as Morocco’s Umnia Bank and Suriname’s Trustbank Amanah, both opened in 2017.

2018 also saw the issuance of the first Moroccan sovereign sukuk, while Morocco became one of the fastest-growing markets of the year, alongside Cyprus and Ethiopia.

Given developments in the different sectors of the Islamic finance industry and its surrounding ecosystem, total Islamic finance assets are projected to grow to US$3.5 trillion by 2024, a compound annual growth rate of 5.5% from 2018.

“This forecast has been revised down from that provided in the 2018 Islamic Finance Development Report to reflect current and expected developments in both the main and smaller markets,” the report noted.

The report was released by financial markets data and infrastructure provider Refinitiv recently, together with the Islamic Corp for the Development of the Private Sector.