At first glance, a brand new study by Fitch Ratings suggests a revival of the Islamic financial sector.
Islamic funds grew at a nominal growth rate of 84 percent within the five years to the top of September, outpacing the broader global mutual fund industry, which recorded growth of 68 percent.
That’s number: annual growth of 13% in comparison with 11% in the standard world.
One could argue that that is to be expected, ranging from such a low level – Islamic assets peaked at $130 billion in mid-2021, before falling to $120 billion by the top of the 12 months.
According to Fitch Ratings, the worldwide mutual fund business is valued at over $100 trillion.
The Islamic assets under management (IAUM) market is dominated by these countries.
In turn, the dominance of Saudi Arabia and Malaysia in onshore markets shows no signs of weakening.
According to Fitch, Saudi Arabia manages 34% of Islamic assets (AuM), while Malaysia has 29%. These two markets have dominated the industry for the past 20 years and show no signs of slowing down.
Jersey and Luxembourg are two other markets which have developed during this time, although these are offshore centers and don’t reflect the expansion of domestic mutual fund activity, for instance.
Many Islamic ETFs, especially commodity funds, are based in Jersey, while Islamic mutual funds are frequently based in Luxembourg.
Where does this leave Indonesia with its 273 million mostly Muslim population? After many years of rhetoric about promise and opportunity, it still accounts for just 3% of AuM.
In terms of Islamic economic architecture, the Indonesian National Islamic Economics and Finance Committee (KNEKS) has created an integrated map of the country’s Islamic economic and financial ecosystem that gives an outline of the roles and responsibilities of stakeholders, players, regulators, infrastructure, IT, human resources and the overall society.
Despite its limited political power, it has done an impressive job of constructing significant improvements to each a part of the ecosystem.
In the sphere of Islamic industrial finance, Indonesia entered 2021 with a grand transformation plan: the mega merger of the country’s three largest Islamic banks, Bank Syariah Mandiri (BSM), BNI Syariah and BRI Syariah in February 2021 to create state-owned Islamic bank Bank Syariah Indonesia (BSI).
BSI’s BUKU III category may have significant capital to compete in Indonesia’s Islamic banking sector, with equity capital of Rp21.5 trillion ($1.5 billion) as of November 2020.
The combination will enhance its potential and talent to compete each domestically and internationally, raising the bar for a sector that has long been considered slow-growing.
Saudi Arabia and Malaysia will remain on top because their engines are so strong, even in the event that they are different.
Money market funds dominate in Saudi Arabia, which distorts the asset structure of all businesses world wide.
It is a thriving and growing economy that’s fully harnessing the strength of the country’s Vision 2030 strategy, which incorporates the event of monetary services as a key diversification goal from hydrocarbons.
The foundations of Islamic finance in Malaysia were laid so well and so way back, with a transparent regulatory framework and a shared mission between the central bank, securities regulator, stock exchange, government and national pension system, that Islamic finance is now perhaps the one thing through which Malaysia excels . It worked and can proceed to work.
The rest is hampered by a wide range of reasons, starting from low populations within the Gulf countries, which they can’t control, to lack of applications in larger Asian countries, which they’ll control.
Source: Euromoney, The Jakarta Post
