Growth of the Islamic Financing Industry to Create Opportunities for the Global Sukuk Market until 2020
LONDON–(BUSINESS WIRE)– Technavio analysts forecast the global sukuk market to grow at a CAGR of almost 9% during the forecast period, according to their latest report.
Global sukuk market to grow at a CAGR of almost 9% during the period 2016-2020, according to Technavio.
The research study covers the present scenario and growth prospects of the global sukuk market for 2016-2020. To calculate the market size, the report considers the total revenue generated from the sukuk issuance primarily in the emerging markets such as Southeast Asia, Middle East, and rest of the world.
Sukuk is considered a key segment in Islamic financing. This instrument links issuer such as sovereigns, corporations, and investor pools. These issuers act as a bridge and seek to diversify their holdings beyond traditional asset classes. Funds raised through Sukuk can be directed at infrastructure initiatives and other projects in different countries.
Sukuk comes from the word “sakk” which is considered an investment certificate that follows Islamic financing principles. The sukuk helps to facilitate trade transactions as this serves as a promissory note among merchants. The issuer of the sukuk sells the certificate to an investor group. This investor group rents the certificate back to the issuer at a predetermined fee. The issuer of the certificate makes a contractual promise to buyback the certificate at a future date at par value.
Technavio analysts highlight the following three factors that are contributing to the growth of the global sukuk market:
- Diversification of investment pattern in emerging countries
- Increasing market prospects
- Cross border transactions
Diversification of investment pattern in emerging countries
The Islamic financing industry is an emerging market which has registered significant growth over the last decade. Rising Muslim populations are inclined to purchase Shariah-compliant products, and so the sukuk market is expected to grow progressively during the forecast period. Many Islamic banks are seeking strategic partnerships with foreign financial institutions in a bid to step up expansion abroad and exploit opportunities in untapped markets. In addition, major conventional financial institutions have participated in the sukuk market. This market will continue to present high growth potential, with increasing competition, growing demand with greater sophistication, and innovation in products and services. Rising disposable incomes have encouraged more people to invest in such products.
Amit Sharma, a lead research analyst at Technavio, says, “The positivity is not only based on the customer’s continual demand for Islamic products, but also on the immense local market potential in the sukuk industry. In countries like Iran, Saudi Arabia, and Malaysia, alliances and collaborative efforts are being encouraged and have resulted in joint ventures and consortiums among local and foreign players in international markets.”
Increasing market prospects
Islamic products have low market penetration in the current market scenario. Technavio analysts expect top vendors in the market to start providing different Islamic products and this should enhance their growth strategies. The Sukuk market is one of the most significant investment avenues and is also a key supporting factor that may power high growth in the Islamic finance industry. The issuance of Sukuk with longer tenures should match investments and risk management needs with long-term liability, and this marriage may boost growth of investment-linked products.
“Top vendors in the market are continually striving to acquire a wider segment of prospective clients by extending their marketing and distribution channels. They are working to devise and develop effective marketing channels by affiliating with various distribution channels,” adds Amit.
More importance is accorded to developing staff capabilities and inculcating professionalism and competencies through sustained training and manpower development initiatives. This is necessary because good customer service is equally crucial in acquiring and retaining the loyalty of the client base. In addition, the emphasis on product compliance with Shariah principles is a key differentiating factor driving the market for sukuk investments.
Cross border transactions
Islamic financial services vendors will seek diversification into foreign investments to exploit global growth prospects and seek higher investment returns. This may boost demand for accumulation of wealth and also for Shariah-compliant assets in Asian markets such as Singapore, Malaysia, and Indonesia. For instance, banks located in Iran and countries in the GCC are expanding operations in Singapore to support the deployment of Islamic funds to corporate entities, through Islamic bank financing and sukuk issuances. They are also tapping Malaysia’s liquid Sukuk markets and significant investor base using the Malaysian national currency.
The Asian Development Bank (ADB) teamed with the Islamic Development Bank (IDB) to provide Islamic infrastructure financing solutions to member countries. The development and participation of these banks in innovating different financial solutions helps to strengthen cross border transactions by involving the Islamic Infrastructure Fund and the International Islamic Liquidity Management Corporation.
Abu Dhabi Islamic Bank
Al Baraka Bank
Al Rajhi Bank
Dubai Islamic Bank PJSC
Kuwait Finance House
Maybank Islamic Berhad
Qatar International Islamic Bank
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