The ratings and financial research company, which has offices around the world, said it expects the $1trn global Islamic finance industry to double in size from 2011 to 2015.
Stuart Anderson, managing director & regional head, Middle East at Standard & Poor’s said: “The global crisis faced by conventional finance has led to Islamic finance increasingly being viewed as a credible alternative. Issuers and investors have realised that the risk-reward balance in both conventional and Islamic finance are not fundamentally different.”
According to S&P, the growth in Islamic finance is led by countries in the Gulf Cooperation Council and Asia, which currently represent half of the global industry. The company said young, fast-growing Muslim populations, robust macroeconomic environments and large infrastructure projects which require financing are the main drivers of this growth.
S&P added that this has been coupled with “major strides” in the industry aimed at trying to achieve a “broader consensus on Islamic banking structures”.
Anderson added there has also been “stronger and more active support from domestic authorities, particularly through the creation of regulatory and tax frameworks, ensuring a level playing field between conventional and Islamic instruments”.
Explaining why it anticipated such huge growth, when many sectors are continuing to contract, S&P said a key development expected to drive globalisation of Islamic finance outside Asia and the GCC, is the “increasing attractiveness of sukuk (Islamic bonds) among global investors”.
“At a time when conventional banks’ appetite for term loans is declining,” said S&P. “Sukuk could become a key funding source.”
Sukuk issuance looks set to cross the $100bn threshold in September 2012, and is projected by S&P to grow 25% over 2012 to 2015 to reach about $200bn a year in 2015. Malaysia, Indonesia, and the GCC are expected to account for a combined 85% to 90% of issuance mainly to finance infrastructure-related projects.
This year, new GCC issuance (as of September 17 2012) has totalled $19.9bn across all asset classes compared with $19.4bn of new issuance in all of 2011.
Asia, meanwhile, has seen sukuk issuance worth $57.9bn year-to-date, compared with $64.9bn in 2011.