Islamic finance growth seen 10-20% in 3 yrs - study

Most executives involved in Islamic finance expect the industry to grow by between 10 and 20 percent over the next three years, a survey published by accountancy firm BDO showed on Thursday.

The study, based on responses from 173 financial services executives active in the sector, found that 53 percent expected 10 and 20 percent growth while another 22 percent felt the industry could grow by 20-30 percent or more.

Some 23 percent felt it would experience growth of 0-10 percent, or no growth at all.

The Islamic finance industry is estimated to be worth about $1 trillion and is dominated by the issuance of Islamic bonds, or sukuk. Growth, however, has been held back by a shortage of expertise and poor harmonisation of the criteria applied to products, the survey respondents said.

Islamic products must be endorsed by scholars able to interpret sharia law and understand the technicalities of financial products.

The industry has struggled to agree on a set of common principles as it is governed by a patchwork of national regulators, standard-setting industry bodies and individual scholars ruling on products and contracts.

Due to different interpretations of the sharia or Islamic law in different regions, a financial product accepted by one set of scholars could be rejected by others. These discrepancies make cross-border distribution difficult.

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 will include representatives of scholars, lawyers, auditors, regulators and bankers who from next year will sieve through financial products and gauge their compliance with Islamic principles.

AAOIFI's standards are adopted in some Middle Eastern markets, including the Dubai International Financial Centre.

The committee will seek to convince providers to alter products it deems inappropriate but will be prepared to go public with its concerns if no progress is made.

The BDO survey respondents picked out Islamic retail loans as the product with most revenue potential, while Islamic insurance, or takaful, was the next most popular. Sukuk were only fourth on the list, behind Islamic mortgages. (Reuters)

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