Islamic finance sees modest growth amid oil-price woes
Islamic finance sees modest growth amid oil-price woes
September 9, 2016 | 12:04 AM
Islamic finance sees modest growth amid oil-price woes
September 9, 2016 | 12:04 AM
Last Updated: September 9, 2016 | 12:04 AM
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JEDDAH — In the current operating environment, S&P Global Ratings sees some opportunities for the future growth of Islamic finance. There are a certain number of prerequisites, however.
The first opportunity lies in the natural connection between the principles of Islamic finance and some of the UN's 17 sustainable development goals.
In our view, both aim to achieve more responsible, equitable, and real-economy-oriented financing. A higher involvement of multilateral lending institutions (MLIs) in Islamic finance through sukuk issuance and Islamic product offerings, on the one hand, and a more stringent application of the principle of profit- and loss-sharing, on the other, could create some future growth opportunities.
The second opportunity lies in the higher involvement of some MLIs in achieving more standardization in legal structures and Shariah. Some market observers think that the standardization debate belongs to the past. In our opinion, it remains highly relevant. We think that this debate is critical to put the industry back on a strong growth path. MLIs are aiming to show the market how to achieve standardization through the implementation of standard structures, documentation, or steps that issuers should go through to make sukuk issuance easier and more efficient. We also think that if standardization is achieved, stakeholders will have more time to devote to innovation and creating new instruments in Islamic finance, which should foster growth.
The third opportunity lies in more consolidation of the industry to transform it into a truly globalized sector from its current status as a collection of small industries. There are several success stories already in Islamic finance. New players could see other market participants' previous successes as motivation. For example, some sukuk issuers could benefit from the experience in Malaysia, where the process of issuing sukuk is as smooth as that for conventional bonds, according to our understanding. Another example could be found in cross-border acquisitions, which might help the industry unite its Shariah interpretation. We have already seen this with several acquisitions of Gulf banks in Turkey, for example. The industry also needs more integration, in our view. For example, more sukuk issuance could help takaful operators to invest less in risky real estate and equities, banks to manage their liquidity, and funds to have some fixed income revenue and allocate other funds to more profit-and-loss sharing instruments.
Banks could start to offer takaful products more systematically if the relevant regulation were in place. Progress would be aided if regulators acted to create a more supportive regulatory environment, while scholars, MLIs, and lawyers worked together to achieve standardization. Universities could provide the necessary training and knowledge to create the needed new generation of Islamic finance professionals.
Finally, all the sectors that form the Islamic economy could work together to achieve more integration. Overall, united and more integrated, the industry will grow stronger.
Oil prices rose Thursday awaiting data on the size of energy inventories in the US, as markets brush off the prospect of a deal to tackle a global supply glut.
All eyes were on the release of official figures from the US energy department, which will provide a better idea of the strength of demand in the world's top economy and crude consumer.
Around 1130 GMT, US benchmark West Texas Intermediate for delivery in October was up 63 cents at $46.13 a barrel.
Brent North Sea crude for November won 57 cents to $48.55, compared with the close on Wednesday.
Ahead of the data, oil prices have rallied in recent days thanks to a softer dollar which makes greenback-denominated crude cheaper for holders of rival currencies.
Industry-compiled data Wednesday from the American Petroleum Institute meanwhile showed that US crude inventories fell 12.1 million barrels last week, helping also to lift oil prices.
Crude futures were winning support also from news that overall imports to China – the world's top energy consumer – rose in August for the first time in 22 months, raising hopes the huge economy is stabilizing after years of slowing.
The developments come as Russia and OPEC are due to meet in Algeria later this month to discuss how to deal with a supply glut that has dragged down oil prices for the past two years.
Recent comments from OPEC kingpin Saudi Arabia and major non-OPEC producer Russia, coupled with Iranian president Hassan Rouhani's commitment to "stabilizing the market", have raised hopes of a possible production cap.
But traders are still sceptical on whether a deal can be reached after earlier efforts this year were scuppered by Iran, which refused to agree to any deal as it emerged from years of nuclear-linked Western sanctions.
The third opportunity lies in more consolidation of the industry to transform it into a truly globalized sector from its current status as a collection of small industries. There are several success stories already in Islamic finance. New players could see other market participants' previous successes as motivation. For example, some sukuk issuers could benefit from the experience in Malaysia, where the process of issuing sukuk is as smooth as that for conventional bonds, according to our understanding. Another example could be found in cross-border acquisitions, which might help the industry unite its Shariah interpretation. We have already seen this with several acquisitions of Gulf banks in Turkey, for example. The industry also needs more integration, in our view. For example, more sukuk issuance could help takaful operators to invest less in risky real estate and equities, banks to manage their liquidity, and funds to have some fixed income revenue and allocate other funds to more profit-and-loss sharing instruments.
Banks could start to offer takaful products more systematically if the relevant regulation were in place. Progress would be aided if regulators acted to create a more supportive regulatory environment, while scholars, MLIs, and lawyers worked together to achieve standardization. Universities could provide the necessary training and knowledge to create the needed new generation of Islamic finance professionals.
Finally, all the sectors that form the Islamic economy could work together to achieve more integration. Overall, united and more integrated, the industry will grow stronger.
Oil prices rose Thursday awaiting data on the size of energy inventories in the US, as markets brush off the prospect of a deal to tackle a global supply glut.
All eyes were on the release of official figures from the US energy department, which will provide a better idea of the strength of demand in the world's top economy and crude consumer.
Around 1130 GMT, US benchmark West Texas Intermediate for delivery in October was up 63 cents at $46.13 a barrel.
Brent North Sea crude for November won 57 cents to $48.55, compared with the close on Wednesday.
Ahead of the data, oil prices have rallied in recent days thanks to a softer dollar which makes greenback-denominated crude cheaper for holders of rival currencies.
Industry-compiled data Wednesday from the American Petroleum Institute meanwhile showed that US crude inventories fell 12.1 million barrels last week, helping also to lift oil prices.
Crude futures were winning support also from news that overall imports to China – the world's top energy consumer – rose in August for the first time in 22 months, raising hopes the huge economy is stabilizing after years of slowing.
The developments come as Russia and OPEC are due to meet in Algeria later this month to discuss how to deal with a supply glut that has dragged down oil prices for the past two years.
Recent comments from OPEC kingpin Saudi Arabia and major non-OPEC producer Russia, coupled with Iranian president Hassan Rouhani's commitment to "stabilizing the market", have raised hopes of a possible production cap.
But traders are still sceptical on whether a deal can be reached after earlier efforts this year were scuppered by Iran, which refused to agree to any deal as it emerged from years of nuclear-linked Western sanctions.
