Details

Economic Pressures Create Reasonable Prospects of Success for Islamic Sharia-Compliant Finance

Islamic banking sector to standardize approach to accommodate fluctuations in target markets

The Islamic Sharia-compliant banking sector continues to gain ground worldwide, accounting for 50 per cent of the banking industry across the world. This is attributed to the fact that the Islamic banking system is resilient and buoyant enough to attract investments in all business platforms.

In its weekly real estate report, Al Mazaya Holding said the current economic situation in the region necessitates the efficient development of Islamic banking products to close the gaps created by the financial crises that hit the markets over the past years. This can be ensured by launching newly developed products that can revitalize the main sectors of the economy in the Arabian Gulf countries, particularly because Islamic banking products are known to be capable of accommodating all types of business pressures under all circumstances.

The report noted that the fall in global oil prices in mid-2014 has had its bearing on the Islamic banking products across the world. However, the Islamic banking industry has shown growing levels of buoyancy that has enabled it to deliver premium results in terms of assets and profits by end of 2015 and 2016.

The ability to ensure sufficient cash levels for Islamic banks comes on top of the challenges facing the Islamic banking sector, which necessitates the development of an efficient mechanism to ensure the required levels of liquidity for Islamic finance and consequently achieve positive results across different business sectors with the aim of enabling individuals to get lucrative returns, indicated the report.

Infrastructure and mega energy projects as well as real estate enterprises come on top of the best investment options available for the Islamic banking industry over the next period, added the report, noting that the massive magnitude of such projects proves the Islamic finance sector’s great potential and competitiveness. In the meantime, Islamic banks are required to develop comprehensive plans conducive to investing in short-term business products that could earn them larger quotas of target markets and consequently garner more profits.

GCC states’ share of the Islamic banking sector amounts to $490 billion, which accounts for 38% of the total value of Islamic banking assets across the world, with Saudi Arabia dominating the asset growth in the Islamic banking industry in the Gulf region. The Islamic banking products in the UAE are gaining ground, representing 20% of the total Islamic banking assets in the region, said the report, highlighting the ongoing efforts in the UAE to launch a higher oversight authority for Islamic Sharia-compliant products that will be in charge of regulating the Islamic banking sector and enhancing its regional and global competitiveness.

Citing recent market research, the report estimated the volume of the Saudi mortgage market at SAR 207 billion, with further growth expected over the coming period, which paves the ground for creating more investment opportunities in the future, especially with the Saudi official authorities planning to raise Saudi citizens’ house ownership percentage from 47% to 52%. Quoting industry business indicators, the report said the Saudi Islamic banks are in a good position to provide mega real estate loans thanks to the legislation recently issued by the Saudi Arabian Monetary Authority that allows up to 85% mortgage of a property, which creates a fertile ground for fair credit facilities.

The Islamic banking sector has managed to provide feasible solutions, and quality and innovative services to large segments of society, as it expects the sector to achieve 15% growth should it manage to keep its current momentum.

In this regard, the report stated the Islamic banking sector has become resilient enough to provide innovative Islamic banking products that are conducive to achieving the targeted growth levels and enhancing banks’ ability to attract new clients under all circumstances.

The report shed light on the remarkable growth in Islamic banking products in Britain, with property financing and purchasing transactions having reached an all-time high in 2016 and mortgage applications rising by as much as 9% in 2016, which makes Sharia-compliant mortgage an ideal option for growing numbers of finance seekers.

In conclusion, the report stated that Islamic banks are required to ensure product alignment and a standardized approach in order to be able to accommodate the fluctuations witnessed by their target markets, including the challenges associated with weak oil prices and returns.

The current weak oil prices are most likely to curb growth levels and create further challenges that, in turn, would make Sharia-compliant finance a more viable option than conventional banking for oil exporting countries to forge ahead with their current and future planning strategies.