Robust Economic Landscape In GCC & Asia Driving Growth In Islamic Finance

Bernama -- The robust economic landscape in the GCC or Gulf Cooperation Council countries and Asia is indicating an immense potential for further growth in the Islamic Finance industry, says Senior Analyst, Global Research of Kuwait Finance House, Arsad Thinoon.

He said the rising wealth and strengthening demand for Syariah-compliant investments will also drive Islamic finance growth.

"Government-linked/top-tier companies in the Middle East and emerging Asia (financial, real estate, oil and gas and transport services) are looking for funds on the back of massive infrastructure and construction projects in the region," Thinoon said during the MIF2008 Issuers & Investors Forum here Monday.

This growth is expected to be strengthened further by improvements in the Islamic finance industry architecture, development of government-backed Islamic financial centres as well as greater awareness and global technological development.

The Islamic financial services is estimated to reach US$4 trillion by 2020 while the global takaful market is estimated to reach US$7.5 billion by 2015 from US$2.5 billion in 2007.

However, there remain challenges in the industry.

According to Thinoon, product diversification even at large Islamic financial institutions remain narrow.

The absence of standards pertinent to Islamic banking and finance has also resulted in uncertainties in accounting principles involving revenue realisation, disclosures of accounting information, accounting bases, valuation, revenue and expense matching, he said.

"There needs to be greater communication and cooperation between governments, regulators and multilateral organisations," Thinoon said.

The subprime crisis in US is also another risk mangement issue in Islamic finance.

According to managing director of BinaFikir, Mohammed Rashdan Yusof, the subprime issue in US is due to excessive leverage and the structuring of bonds not according to cashflow resources.

Mohammed Rashdan was speaking at the forum entitled, "Learning from the Markets: Risk Management Issues and Islamic Finance".

Another speaker, Mohamed Ridza, managing partner of Mohamed Ridza & Co. said that amid the subprime crisis - now a major concern among investors - some countries have been aggressive in adopting regulations that meet investors needs in addressing risk issues.

Within the Asian region, Singapore is one country that has been aggressive in its guidelines and regulations in meeting investors' needs, Mohamed Ridza said.