The global Islamic finance industry will expand slowly in 2018 and 2019, according to report published by Standard and Poor’s (S&P) Global Ratings.
The American financial services company said that the Islamic finance industry would only grow by about 5 percent on average over the next two years owing to tepid economic conditions in certain core markets.
However, S&P added that standardisation and financial technology (fintech) could help accelerate the industry’s growth in the short to medium term.
In particular, standard Sharia interpretation and legal documentation could simplify sukuk issuance, while making room for innovation.
Sukuk, or Islamic bonds, are bonds that are structured in such a way as to generate returns to investors without infringing Islamic law on the charging and payment of interest.
Mohamed Damak, S&P global head of Islamic finance, said: “In the medium term, we envisage some disruption in the payment services sector, an increase in the number of people using financial services, as well as greater use of regulatory technology for Sharia compliance, and blockchain to support transaction traceability and identity protection.”
“We foresee only a marginal influence of fintech on our Islamic bank ratings over that period. We consider that Islamic banks will be able to adapt to their changing operating environment through a combination of collaboration with fintech companies and cost-reduction measures.”
Damak concluded: “We also believe that regulators across the wider Islamic finance landscape will continue to protect the financial stability of their banking systems.