Islamic finance growth to slow over low oil price

Dubai (AFP) – The fast-growing Islamic finance industry is set to slow down next year over the sharp fall in oil revenues and rapid regulatory changes, Standard and Poor’s Ratings Services said on Monday.

“We think Islamic finance growth will drop to single digits in 2016 from between 10 percent and 15 percent over the past decade,” S&P said in a report.

The agency said that such rapid growth had seen the Islamic finance industry exceed an estimated $2 trillion in value.

“But we now think the industry faces challenges from the decline in oil prices, changes in the global regulatory framework for banks and insurance companies, and its own fragmented nature,” said S&P Global Head of Islamic Finance Mohamed Damak.

Growth in Islamic finance is set to slow next year over the fall in oil revenues and regulatory changes, S and P says (AFP Photo/Adek Berry)

S&P expects the size of Islamic finance to hit $3 trillion sometime in the next decade although the Sharia-compliant industry was projected to hit the landmark much earlier.

Governments in core markets see Islamic finance as a tool to maintain their investment spending, somewhat countering the negative impact of oil prices on their budgets, the report said.

Islamic finance bans interest, products with excessive uncertainty, gambling, short sales and financing prohibited activities considered harmful to society.

Around 40 million of the world’s 1.6 billion Muslims are clients of the Islamic finance industry, which has surged in popularity since its niche market days of the early 1970s.

Islamic finance’s risk-sharing features and prohibition of speculation suggest that it may, in principle, pose less systemic risk than conventional finance, the International Monetary Fund said in June.

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