Following a subdued primary market in 2022, sukuk issuance could resume from where it left off a few years ago as the effects of the Covid crisis fade setting the stage for total Islamic finance assets to reach US$5.9 trillion by 2026.
The past year in Islamic finance was defined by rate hikes, increased volatility, and high oil price. In addition, geopolitical tensions have also dampened risk appetite especially for emerging markets debt. Activity in the core markets of the Gulf Cooperation Council (GCC), Malaysia, Indonesia, Turkey and Pakistan have slowed as a result.
Outlook in 2023 is likely to be clouded by slower growth with the largest economies falling into recession. Still, demand for sukuk remains strong and liquidity in the market is supported by the elevated oil price.
Growing awareness of Islamic banking and finance has also increased demand for Shariah-compliant products. Banks are capturing this opportunity by either converting into full-fledged Islamic banks or opening a window for Islamic finance.
Longer term, attention to climate transition is uncovering the gap in finance. Addressing this need will require funding from diverse sources including Islamic finance. Given that only a fraction of the capacity of Islamic finance has been tapped as a source of funding, this liquidity could provide the additional funding to accelerate transition across Asia and beyond.
Capital markets can bring together green sukuk, green infrastructure funds and sustainable finance instruments serving as a scalable Islamic climate finance solution to meet the needs of Asia and the Middle East.
In recent years, especially since the pandemic, there has also been a dramatic increase in the digitalization of the sector as spending on technology and digital processes surged. A lot of effort has been done in terms of digitalizing Islamic financial services without compromising the Shariah principles that guide them. Increased digitalization and fintech-based collaborations are improving the industry’s resilience and opening new avenues for growth.
The Asset Events is pleased to be hosting the 6th Global Islamic Finance Issuers and Investors Leadership Dialogue. The event will gather key players, stakeholders and scholars to discuss the issues, challenges and opportunities in the Islamic finance industry.