Panel
Great Ambition: Islamic Finance Goes Global
Milken InstituteMatthew Reese, Sean Marion, Chiron Makhzani, Mohamed Ahmed Al-Kajah, Yasser Al-Alawi, Kelly Core, Adele Nazarian
- The Islamic population is forecast to rise from 23% today to 30% of the global population by 2050, driving industry evolution to serve the underbanked.
- The industry has grown at 15% to 20% annually and is projected to maintain that pace until 2019, followed by continued double-digit growth that may be slightly lower than previous rates.
- Moody's estimated 2015 Sukuk issuance could reach $100 to $150 billion, potentially exceeding internal forecasts, with 2015 expected to be a strong issuance year.
- Malaysia is projected to remain just under Saudi Arabia in total Islamic assets and will continue issuing significant Sukuk in local currency as part of a $300 billion economic transformation program over the next five years.
- Bahrain is expected to maintain its role as the primary center for Islamic standard setting within the GCC.
- Governments in Hong Kong and the U.K. are expected to set benchmarks, though corporate follow-up in the U.K. has not yet materialized, and infrastructure is anticipated to become a major growth area due to constant income streams and the need for geographical diversification beyond Malaysia and the GCC.
- Issuing Islamic instruments is expected to diversify the investor base and potentially lower the cost of capital, yet Sukuk yields are predicted to remain consistently lower than conventional fixed income benchmarks until issuance volumes increase to a tipping point.
- Many Sukuk transactions are expected to remain structurally equivalent to senior unsecured bonds with nominal asset transfers rather than representing true asset-backed securitizations.
- A risk exists that major global financial centers like London will become dominant hubs, potentially overshadowing early work in the Middle East and Malaysia.
- Demand for Sukuk is expected to continue outstripping supply for years, creating liquidity constraints, while sovereign wealth funds like Khazanah are expected to issue Sukuk for market development rather than funding needs.
- The decline in oil prices is expected to compel Gulf governments to absorb banking deposits, prompting more corporates and government-related entities to issue Sukuk to fund infrastructure.
- If sanctions are lifted, the Iranian market is expected to become a significant driver for Islamic banking due to its sophisticated economy and $450 billion in existing compliant assets.
- Islamic unit trusts are expected to perform well during crises by excluding banks and avoiding exposure to banking sector failures.
- A radical transformation toward equity-based financing could theoretically act as a circuit breaker against economic crises caused by debt transmission, while the current negative yield debt environment in Europe offers an opportunity to implement interest-banning principles.
- Islamic hedge funds with derivatives-like structures are expected to launch within one to two years, though the market will likely remain controversial regarding scholarly acceptance.
- The market for Sharia-compliant mortgages in the U.S. is expected to grow driven by Gulf investor demand, while GCC investors will maintain a preference for U.S. dollar-denominated assets with credit tenant leases.
- Regulatory strengthening and increased participation from international banks are expected to shape the sector significantly over the next five to six years.
- Scholarly opinions and standard interpretations are expected to converge over the next 10 to 15 years, with laws designed to encourage active trading and economic participation rather than "lazy money."