ESG

Islamic Finance Will Move Toward Sustainable Growth, according to S&P Ratings

sustainable islamic finance

According to S&P Global Ratings report "Islamic Finance 2021-2022: Toward Sustainable Growth", the global Islamic Finance industry will grow by 10%-12% in 2021-2022 after slowing to 10.6% in 2020 (excluding Iran).

A performance explained by the growth of Islamic banking assets in some Gulf Cooperation Council countries, Malaysia, and Turkey and sukuk issuances exceeding. "Islamic finance grew rapidly in 2020, albeit at a slower pace than in 2019, despite the double shock from the pandemic and the drop in the oil price," said Mohamed Damak, S&P Global Ratings Head of Islamic Finance. We have excluded Iran from our statistics this year owing to the extreme volatility of the country's currency in the parallel market (as disclosed by the Central Bank of Iran), which makes comparison with last year's numbers or any forecasts less meaningful.

"Although we expect a modest recovery for most core Islamic finance countries in 2021-2022, we think that the sector will expand against the backdrop of continued standardization and integration," added Mr. Damak.

In the next 12 months, we could see progress on a unified global legal and regulatory framework for Islamic finance that the Dubai Islamic Economy Development Center and its partners are developing. Depending on the outcome and its adoption, S&P Global Ratings believe that such a framework could help resolve the lack of standardization and harmonization that the Islamic Finance industry has faced for decades.

Such framework could also lead to more frequent issuance of dedicated social Islamic Finance instruments and Green Sukuk as the industry leverages its alignment with environmental, social, and governance values. This would help tackle the aftermath of the pandemic and support the agenda for core countries' energy transition. We expect such processes will remain slow, however, given the additional complexity related to these instruments and the core Islamic finance countries' slow implementation of policies to manage the energy transition.