|
Total assets of the Islamic financial system are estimated to exceed US$1 trillion with an estimated annual growth rate of between 15% and 20%. The potential global Islamic bond or Sukuk market appears promising.
The funding needed for infrastructure projects in the Middle East and Asia region alone is expected to exceed US$500 billion.
There has been significant growth in Islamic assets following the diverse and innovative structures of Islamic investment funds, including Islamic hedge funds. There are now more than 250 Shariah compliant mutual funds that are managing an estimated US$300 billion in assets.
Other developments include benchmark indices such as Dow Jones Islamic Market Indexes — covering more than US$10 trillion market capitalization in over 40 countries, the Financial Times Stock Exchange Global Islamic Index Series and the listing of Islamic financial instruments on international exchanges.
With the establishment of the Islamic Financial Services Board (IFSB), which formulates the international regulatory and prudential standards for Islamic finance and its issuance of standards for capital adequacy, risk management and corporate governance, and formulation of standards including market conduct and rules for financial disclosure and transparency, the Shariah governance framework and the supervisory process ensure best practices and the soundness and stability of the Islamic financial system.
Flow of FDIs
IDB’s investment report for 2007 estimated that foreign direct investment (FDI) flows to all IDB member countries as a group increased from US$18.2 billion in 1995 to US$70 billion in 2005. On average, IDB member countries received US$27.2 billion per year from 1995 to 2005, which is only 3.7% of global FDI inflows.
Promotion of investment in IDB member countries has always been an area of primary interest for IDB. The bank actively cooperates with the development of finance institutions, the Chamber of Commerce and Industry, and Islamic banks with the aim of promoting and supporting investment flows in member countries, while also emphasizing private sector development.
Islamic banking and finance recent developments
Growth and opportunities
According to the 10-year master plan developed by IDB and IFSB, the future outlook for IFSI can be summarized based on past developments and the present status of the industry.
The average annual growth rate of IFSI assets for the period of 1995-2004 is estimated to have been between 10% and 15%. Assuming IFSI assets worth US$700 billion in 2005 and an annual growth rate of 15% until 2010, IFSI could grow to US$1.4 trillion by 2010 and to US$2.8 trillion by 2015.
Challenges and impediments
Islamic banking has come a long way over the past three decades. However, it also faces several challenges that need to be addressed in order to provide a sound footing for its future path. These include human resource requirements for Shariah compliance, an appropriate legal framework and tax neutrality, enabling supervisory framework, unresolved fiqh issues, credibility and sustainability, and inter-bank liquidity placement and risk management.
The competitiveness and soundness of financial institutions depend on the availability of efficient financial products. Islamic banks urgently need Shariah compliant products to meet a number of pressing needs, including short-term placement of funds and liquidity and asset-liability mismatch management; financial risk management and hedging; resource mobilization at a competitive cost; and balance sheet management through securitization.
IDB Group updates and recent activities
IDB has announced the issuance of its first ringgit Sukuk, a medium-term note (MTN) program of RM1 billion (US$290 million), under which Sukuk up to RM500 million (US$145 million) would be raised as the first tranche.
The transaction marks the third Sukuk issuance by IDB after its issuances in 2003 and 2005 but would be the first to be denominated in a member country’s local currency.
Islamic Corporation for the Development of the Private Sector (ICD)
The cumulative total net approvals under the ICD portfolio have reached US$744.54 million, with a net current exposure of US$551.7 million. The industrial sector has the largest share of net approvals and net current exposure in terms of number of projects and amount. ICD’s net approvals and net current exposure cover 19 countries.
International Islamic Trade Finance Corporation (ITFC)
ITFC continues to build on the achievements of IDB in the area of trade finance. The principal objective of ITFC is to complement the activities of IDB by providing trade financing to member countries, in accordance with the principles of Shariah.
ITFC’s activities include the promoting and financing of intra-trade among member countries, further the developmental impact of trade financing on member countries, and enhancing the export capabilities of member countries. The total trade financing operations approved are 1,622 worth US$24.1 billion.
Ahmed Saleh Hariri took over as director of the IDB regional office in Kuala Lumpur in 2003. He oversees the activities of the IDB group in the region covering Malaysia, Indonesia and Brunei. |
