Alpen Capital (ME) Limited and Alpen Asset Advisors Limited announced the publication of their report on Islamic Finance and Wealth Management. The report provides insight into the global Islamic finance and wealth management industry and presents an overview of the market, along with a perspective of the COVID-19 impact on the industry. The report also covers the various instruments driving the market, along with demand drivers and challenges, emerging trends, and an outlook for the sector.
The COVID-19 pandemic highlighted the Islamic finance industry’s susceptibility to exogenous risks, as it was exposed to the severe implications of the pandemic in equal measure as its conventional equivalent. Even though the total Islamic assets in 2020 are expected to be similar to the previous year’s figures, the industry slowed down during 2020 after experiencing 14.4% y-o-y growth in 2019. Thus, a speedy and effective response has now become crucial to ensure profitability, as well as spur recovery and growth which has been muted during the last year.
Governments of major Islamic finance markets have been spearheading recovery through initiatives aimed at reforming the industry. Although the industry lacks in terms of global standardization, governments are likely to focus more towards infrastructure development in the near-term. Amid these efforts, technology integration remains the key in fueling recovery and growth in the Islamic finance industry. There remains growing room for further innovation and collaboration, paving the way for higher profitability for Islamic finance institutions.
The sukuk market is expected to gain momentum, fueled by its applications as a financial tool to raise funding for governments as well as corporates. Rise in Islamic FinTech’s popularity is prompting a surge in FinTech-focused investment funds, which are likely to accentuate the market and create opportunities for Islamic FinTechs to expand services. This coupled with digital innovations is expected to enhance market attractiveness and further strengthen the industry. Several new avenues have opened up within Islamic investment, such as charitable trusts, private equity, exchange-traded sukuk funds, Shariah-compliant Mortgage Investment Funds, Halal Mutual funds, etc. Such wide offerings are likely to appeal to a broader consumer base, thus improving demand prospects for Islamic instruments.
The pandemic has highlighted the prominence of Islamic Social Finance tools. Social impact-focused investments that are consistent with ESG considerations and sustainable goals are expected to witness rising demand. Regional and global humanitarian and development agencies such as the UNICEF, UNDP and UNHCR, are increasingly deploying Islamic social funds through initiatives such as cash transfers, start-up capital, funds for providing interest-free loans, micro-takaful and other forms of microfinance. Going forward, Islamic Social finance tools are likely to play a significant role in ensuring financial safety nets to accentuate the recovery for economies.
The next surge of growth for the Islamic finance industry is expected to be driven through innovation, standardization, and M&A activity. Newer markets are likely to drive growth as the core Islamic countries grow towards maturity. Investment activity is expected to be skewed towards the FinTech sector as digital capabilities become more critical due to COVID-19.
The COVID-19 induced slowdown as well as financial vulnerability in jurisdictions where Islamic banking is practiced are envisaged to put the industry’s resilience to test in 2021 and beyond. Nevertheless, an optimistic outlook by the IMF on global economic recovery coupled with innovation, standardization, M&A activity and prudent measures by the governments are expected to spur a recovery.
To download the report, please click here.