Islamic Enterprises

In just four decades, the Islamic Enterprises sector has witnessed considerable growth and is now regarded as one of the fastest growing asset classes in the global financial sector. The improved industry infrastructure in the Islamic world, a more comprehensive industry, a wider investor base and greater cross-border transactions have been key contributors to this growth. The growth of the industry has attracted the attention of a vast array of non-Islamic institutions, who are looking to diversify their portfolios away from traditional asset classes.

The emerging market status of many Islamic countries is expected to remain central to global growth over the next few decades, a large proportion of whom have substantial populations. Rapid growth currently in South East Asia and the introduction of the ASEAN Economic Community is a key step towards a larger integrated market. The Gulf region, experiencing the force of the declining oil price, is transforming itself through a diversification drive to promote new sustainable Islamic industries. In addition, the Asian Infrastructure Investment Bank (AIIB) is ready to deploy its US$ 100bn capital in a variety of new initiatives, notably the China-Pakistan Economic Corridor.

The Islamic Enterprises sector is centred upon nine markets: Pakistan, Kuwait, Turkey, Saudi Arabia, Malaysia, UAE, Indonesia, Qatar and Bahrain. Several other markets remain largely untapped including the African continent, India and the Commonwealth of Independent States. For over a decade, many Islamic banks have experienced a surge of interest and double-digit growth, well ahead of the traditional banking system, with industry assets expected to reach over US$ 5trn in the coming five years. However, the sector still typically comprises less than one-third of total financial assets in such markets, including the GCC and Malaysia, and therefore has the potential to evolve much further in the future.

Muslims represent nearly 25% of the world’s population, yet less than 2% of global financial assets are Sharia compliant.  While the concept of Sharia compliant investing goes back many centuries, the sector has only been recognised as an asset class of its own over the past two decades or so. There is clearly an information gap that needs to be rectified in the coming years. With the funds industry, growing on average at 15 to 20% per annum, opportunities for innovative portfolio structuring are increasing, particularly with continued financial and economic uncertainty in the largest global economies. Pensions funds and sovereign wealth funds have therefore begun to look at Islamic Enterprises more closely, with sukuk issues and the growing takaful market of particular interest to global investors. Meanwhile, Islamic banks and finance companies are working to develop new Sharia compliant products and apply them to fast growing industries including renewable energy, agriculture, food processing and tourism.