S&P Global Ratings expected the Islamic finance industry to show low-to-mid-single-digit growth in 2020-2021 after the 11.4 percent in 2019 following strong sukuk market performance.
In a report on Tuesday, it said the COVID-19 crisis offers an opportunity for more integrated and transformative growth with a higher degree of standardization, stronger focus on the industry's social role and meaningful adoption of financial technology (fintech).
Coordination between different stakeholders is key to the industry leveraging these opportunities for sustainable growth, it stressed.
The global Islamic finance industry will return to slow growth in 2020-2021 after strong performance in 2019 underpinned by a more dynamic sukuk market, the report read.
“The significant slowdown of core Islamic finance economies in 2020, because of measures implemented by various governments to contain the COVID-19 pandemic, and the expected mild recovery in 2021, explain our expectations.”
In the meantime, it added, the agency sees opportunity in the current environment for accelerating and unlocking the long-term potential of the industry.
Stakeholders are realizing the importance of standardization as government coffers are depleted and access to sukuk remains time consuming and more complicated than conventional instruments.
Lockdown measures have also shown the importance of leveraging technology and creating a nimbler industry.
The report pointed out that industry players have been discussing the potential use of social instruments to help companies and individuals economically affected by the pandemic.
“With the right coordination between different Islamic finance stakeholders, we believe the industry could create new avenues of sustainable growth that serve the markets,” it said, noting that recession and mild recovery thereafter will hold growth through 2020-2021.
According to the report, Islamic banking is to show at best stable total assets or low-single-digit growth.
This follows 6.6 percent growth in 2019 thanks to good performance in the Gulf Cooperation Council (GCC), Malaysia, and to a lesser extent Turkey and Indonesia, but a declining contribution from Iran amid the deep recession reported by the IMF.
“In 2020, we expect a slowdown spurred primarily by measures implemented by various governments to control the COVID-19 pandemic.”
This slowdown will be somewhat counterbalanced by strong liquidity injections from various central banks to help their banking systems navigate the difficult environment.
However, this, together with complexity and lower investor appetite, will contribute to a sukuk market slowdown in 2020, it said, projecting the volume of issuance to drop to $100 billion in 2020 compared with $162 billion in 2019.
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