The Growth Of Islamic Finance In Asia - A Labuan Perspective

Author:Mr Aderi Adnan
Profession:Labuan IBFC Inc Sdn. Bhd.

In recent years Islamic finance has emerged as one of the most rapidly expanding sectors of the global financial industry, with expectations that it will play an increasingly more important role in the years to come.

The size of the global Islamic banking industry is believed to have grown from about US$$820 billion at the end of 2008 to more than US$$1 trillion in 2010, while latest studies indicate that the steadily growing Islamic banking system could reach US$$1.5 trillion in 2012 and US$$3 trillion by 2015.

The global economy is gradually recovering, this coupled with an improvement in market conditions and investor sentiment, has meant that in the first nine months of 2010, total Sukuk (Islamic Bonds) issued globally increased further to US$27.9 billion, 62.3 per cent higher than the similar period in the previous year and surpassing 2009 full year issuance of US$24.7 billion.

Why is there a growing demand for Islamic Finance products world-wide?

The underlying concept fundamental to Islamic banking and finance is justice, which is accomplished through the sharing of risk.

Stakeholders are under an obligation to share profits and losses derived from financing transactions and to refrain from dealing at usurious interest rates, which are unacceptable in Islam. This principal of ethical finance is proving increasingly more attractive to non-Muslims.

The Islamic financial system also practices a strict prohibition of investments in risky instruments such as toxic assets and derivatives, which have adversely affected their conventional competitors.

Islamic products enable the issuer to reach cash-rich investors and ethical investors world wide. This is evidenced by the growth of Islamic finance in both Muslim and non-Muslim communities alike.

Buffered from the global financial crisis

Islamic finance is not immune to the global financial crisis but has proved to be less affected by the economic down turn due to its requirement for asset backing coupled with ethical financial principles.

The crisis exposed the loopholes and weaknesses within the conventional system, allowing Islamic products to become more popular because their principles have shielded them from the sub-prime crisis. Debt-selling (derivatives), the primary cause of the crisis, is not allowed in Islamic finance.

Increasing demand and popularity for Sharia compliant products and structures post the global financial crisis will form a strong demand base for Islamic financial instruments...

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