The Booming Global Islamic Finance

From the Economist (bold emphasis added)

THE global market for Islamic finance at the end of last year was worth around $1.3 trillion, according to the UK Islamic Finance Secretariat, part of the CityUK lobby group. The total value of sharia-compliant assets has grown by 150% since 2006. Globally, banks hold over 90% of Islamic assets, and together with funds are big investors in sukuk, a type of bond. According to the latest quarterly report from Zawya, a business information firm, global sukuk issuance in the first quarter of this year was $43.3 billion, almost half the total for the whole of 2011. The withdrawal of European banks lending to the Gulf Co-operation Council (GCC) region is thought to have contributed to this rise. Total issuance could reach $126 billion this year, continuing the growth trend (aside from a brief decline in 2008 associated with the global economic slowdown). Malaysia, which dominates the global sukuk issuance market, is over 60% Muslim, and Islamic banking assets make up around a quarter of the country’s total. Globally, perhaps 12% of Muslims use Islamic financial products, but with other countries (predominately Muslim or with large Muslim populations) expressing interest in increasing services, the market seems likely to continue to grow.

My observations

The unfettered market always evolves according to the people’s demand. In today’s deepening of the information age, market trends have increasingly been based on niches or custom designed products and services. And this applies to the fast growing modern Islamic financing.

The terse article also shows how the world does not operate on a vacuum. The European crisis may have even bolstered the demand for sukuk issuance, as Muslim investors seek alternative options or safe havens.

Yet, Islamic finance has not been limited to the Muslims, as seen by the over 90% holding of Islamic assets by global banks, along with other countries “expressing interest in increasing services”. The point is that integration represents as natural consequences of free trade. In other words, the booming Islamic finance has been representative of the deepening of financial globalization.

Lastly, it is should also be pointed out that Malaysia being the largest sukuk issuer in 2011 has been a key proponent of the reintroduction of the Islamic gold standard, or the Islamic gold dinar since 2002.

While there seems hardly any traces of connection between sukuk issuance and the gold dinar yet, perhaps further inflationism by the developed nations may prompt for wider usage of the gold dinar in Muslim states as Malaysia, and also perhaps sukuk issuance could be backed by gold or denominated in the gold dinar. A combination of the two would likely incite greater demand for sukuk bonds and the dinar.