Islamic finance to grow 10-20 percent in 3 years

Islamic Banking

A new study estimates that Islamic finance will grown between 10 and 20 percent over the next three years.

The study, carried out by accountancy firm BDO, discovered that 53 percent of the 173 financial services executives surveyed fully expect the sector to grow up to 20 percent, while another 22 percent of the people asked think it can grow by as much as a third in the same period.

Up to now the Islamic finance industry has been hindered by a shortage of expertise and a lack of harmonisation of the criteria applied to products, and many companies have stayed away from the Sharia law-governed sector that prohibits investments in any companies involved in areas such as alcohol and tobacco.

What's more, Islamic products must be endorsed by scholars able to interpret sharia law and understand the technicalities of financial products.

Islamic finance worth $1 trillion

However, Islamic banking is growing and is already thought to be worth about US$1 trillion with an increasing number of large international firms being attracted to the sector. Most notably, German luxury car maker Daimler said at the start of this month that it would be launching a financial services unit in the United Arab Emirates, to offer credits which conform to Islamic law.

It is hoped that previous problems in agreeing on a set of common principles can be rectified in the future by the patchwork of national regulators, standard-setting industry bodies and individual scholars that govern the sector.

Establish common guidelines

AAOIFI, a Bahrain-based body responsible for accounting, auditing and governance standards in Islamic finance, is setting up a committee which will try to establish common guidelines in the industry.

"We feel that these differences are damaging our credibility severely within the Muslim (world) and outside," said Mohamad Nedal Alchaar, AAOIFI secretary general, who attended the presentation of the survey results.

The committee's aim is to persuade providers to alter products it feels are inappropriate and expressed a willingness to go public with its concerns if progress fails to be made.

According to the survey, Islamic retail loans came out on top as the product most likely to bring in revenue, with Islamic insurance, takaful, coming a close second.

Sukuk were only fourth on the list, behind Islamic mortgages.

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