Islamic Finance Market Could Hit $4trn By 2020

Experts say Islamic finance has potential to reach $4trn in next 10 years, providing skills shortage and GCC bank asset fears do not hinder growth.

The Islamic finance industry could hit $4trn within 10 years, but fears loom large over a chronic talent shortage and the asset quality of GCC banks, according to research by Kuwait Finance House (KFH).

Islamic banking assets worldwide have grown 10 per cent annually from about $150bn in the mid-1990s to $770bn in 2009.

But despite a positive post-crisis recovery, the future growth of the Shariah industry is still up in the air, said Baljeet Kaur Grewal, managing director and vice chairman at KFH Research.

“In the GCC, although liquidity is slowly returning, expect financing growth to remain lacklustre on the back of a challenging operating environment and concerns over banks’ asset quality.

“The Islamic finance industry is growing at a much faster rate than it is developing and acquiring new talent. The shortage of human capital could turn out to be the main impediment to growth if not addressed immediately,” she said.

Within Islamic financial services, Grewal expects a global recovery led by the sukuk market on the back of the popularity of Islamic products and because of the investment and financing requirements of the GCC and Asia.

Islamic financial institutions are subject to Shariah regulations and are forbidden from investing in the complex derivative instruments that brought down many of the traditional banks in the West.

But Grewal said although this afforded the industry some protection, it does not exist in an economic “vacuum”.

Sukuk issuances slumped 54.9 per cent $15.5ln in 2008, while Islamic equities dropped 39 per cent worldwide.

Despite this, KFH Research, one of the world’s few Islamic bank-backed research houses, expects 2010 sukuk issuance to come in at about $30bn.