IS Islamic financing being given a new lease of life as the concept of environmental, social and governance (ESG) slowly but surely gains dominance within the world of finance?
Some observers seem to think so, as both share certain traits like an emphasis on fairness, equality and sustainability.
But more than that, Islamic finance has on its own, without much fanfare, been seeing a steady growth over the past decade.
Bank Negara in its latest Financial Sector Blueprint notes that the global Islamic finance landscape has evolved significantly.
“Compared to a decade ago, Islamic finance has gained greater prominence in the global financial landscape.
“Global Islamic financial assets have grown from US$1.6 trillion (RM7.2 trillion) in 2012 to US$2.7 trillion (RM12.1 trillion) in 2020.”
Prospects for further growth remain significant, particularly within Asia and the Organisation of Islamic Cooperation or OIC countries, it says.
The central bank in the report also says that prospects may arise from untapped market segments, the growing halal business and demand for more sustainable investments.
“Alongside the broader digitalisation of financial services, Islamic fintech opportunities are also growing, particularly in developing countries with Muslim-majority populations,” it adds.
OCBC Al-Amin Bank Bhd CEO Syed Abdull Aziz Syed Kechik says at the global level, Islamic finance assets have grown, driven primarily by the growth of banking assets and sukuk issuances.
“Standard & Poor’s has forecast a growth of 10% over the next two years.
“These point to the relentless upward momentum of the industry,” he tells StarBizWeek.
“Alongside this, there is now greater investor-based diversification stemming from the growing sensitivity to ESG factors.
“With this, many sukuk issued now have a sustainability dimension revolving around being green, socially responsible and so forth,” he adds.
According to him, OCBC Al-Amin Bank’s contribution to overall OCBC Malaysia annual revenue has remained stable through the years at about 15% to 17%.
“Broken down, OCBC Al-Amin’s financing growth rate has been among the more significant, forming about 19% of OCBC Malaysia’s total loans and financing in 2021 compared to only 14% five years ago,” Syed Abdull says.
“This is generally in line with what we see in the market where Islamic financing has grown in size with Islamic banking assets representing 41% of total banking industry assets in 2020.”
AMMB Holdings Bhd
(AmBank) group CEO Datuk Sulaiman Mohd Tahir agrees that the domestic Islamic banking sector accounted for around 41% of overall commercial banking loans based on latest figures, and says that this could reach 45% by the end of 2026.
“Recent developments galvanising growth in the sector include Value Based Intermediation (VBI) under the auspices of Bank Negara, which looks at generating a positive and sustainable impact on businesses, the economy, the community and the environment,” he tells StarBizWeek.
“This then spurs the development of new products, markets and approaches.
“As financial services providers, our role is evolving as we advance towards our VBI aspiration of being a purpose-based organisation while at the same time delivering sustained long-term value to shareholders,” he adds.
He says the lender sees “enormous opportunity” and potential in the Islamic banking segment, and remains focused on efforts to propel this segment forward.
According to Sulaiman, AmBank Islamic has always been an instrumental part of the group’s core business.
“We have seen significant growth in our Islamic banking arm over the years, with AmBank Islamic’s revenue constituting 22.1% of AmBank group’s revenue for financial year 2022 (FY22) as compared to 19.8% in FY18, growing at a compound annual growth rate of 7%,” he says.
Sulaiman says the segment’s growth is very much market-driven.
“We continue to serve our existing market segments, including retail, small and medium-sized enterprises or SMEs, as well as corporate and institutional customers by giving them an alternative banking service focusing on the unique features of Islamic banking.
“Concurrently, AmBank Islamic adds value by penetrating niche market segments that naturally gravitate towards Islamic banking,” he adds.
Sulaiman also says he sees that the potential for growth is concentrated in segments and products that are synonymous with Islamic banking such as Islamic wealth management offerings and the focus on public and religious bodies.
“We are homing in on expanding our offerings in these focus areas to further drive AmBank Islamic’s forward trajectory.
“Among our signature offerings via AmBank Islamic are AmWafeeq Savings Account-i and ASB Financing-i,” he adds.
In terms of current account, savings account or CASA, AmBank Islamic’s solutions include the AmWafeeq Savings Account-i, virtual accounts and JomPAY. Notably, the lender saw its Islamic retail banking business record a 20.4% growth in CASA in FY22.
Likewise, MIDF head of research Imran Yassin opines that the Islamic banking business is “very important” to Malaysia as evident by Bank Negara’s promotion and support of developing Islamic banking.
“Malaysia has a long history of Islamic finance which has been in existence for over 30 years and Malaysia continues to be the largest Islamic banking, sukuk and takaful market in Asean,” he tells StarBizWeek.
Calling it an alternative banking platform for consumers who do not want conventional banking, Imran says he also believes that Islamic banking remains on a stable uptrend.
“Islamic banking assets continue to grow at a good rate and we have observed continued growth in the issuance of sukuk and other Islamic banking products.
“In fact, the rapid liberalisation in the Islamic finance industry, in addition to the business environment here, has encouraged foreign financial institutions to set up Islamic banking businesses in Malaysia,” he adds.
There are currently 16 Islamic lenders in the country, of which five are foreign-owned.
To be sure, Malaysia once had the ambition of establishing a mega global Islamic bank here but to date, this has not come to fruition.
To this, AmBank’s Sulaiman says: “What’s important to note is that Malaysia has been ranked first among 135 countries in the Global Islamic Finance Development Indicator and first among 81 in the Global Islamic Economy Indicator, for the ninth year running now.
“This is something we as a nation should be very proud of.”
He says while the potential for Malaysia in the Islamic banking sector is tremendous, any move the country makes must be based on solid commercial grounds.
“This includes the creation of any global Islamic financial institution. There are many variables to consider and we must also understand that each country’s Islamic banking approach and principles are distinct from one another.”
