Nov 27 Islamic banks around the globe view risk
management, equity financing and deepening their client base as
the most pressing issues facing the sector in coming years, a
survey released on Friday showed.
The survey drew input from the heads of 83 Islamic finance
institutions, the first comprehensive attempt to measure
business sentiment in a growing-yet-diverse industry which holds
around $2 trillion in assets globally.
The General Council for Islamic Banks and Financial
Institutions (CIBAFI), a non-profit organisation headquartered
in Manama, conducted the survey between April and June.
Two-thirds of the respondents were full-fledged Islamic banks.
Commercial financing remains the top revenue driver, but
financing to small and medium sized enterprises (SMEs) ranked
second-highest, the survey showed.
SMEs are seen as leading revenue for Islamic banks in Asia,
with trade finance ranking highest in sub-Saharan Africa.
In the Gulf region SMEs are also in focus, partly due to
concerns about over concentration of business from large firms.
SME's could help expand the sector's customer base but they
are also linked to its main challenges: strengthening risk
management practices and a need to shift from debt-based to
Islamic banks can struggle to manage certain risks, such as
liquidity and default risks, because of the way they are
designed, with elements of deposit-taking institutions,
investment companies or collective investment schemes.
The survey reflects the industry's core centres, with 39
respondents from the Middle East, 16 from Asia and 21 from
Africa, yet the industry remains fragmented and there are few
signs of this changing.
Merger and acquisition activity was ranked as the
second-lowest growth driver by respondents.
In terms of business prospects, Islamic banks in Africa are
the most optimistic about future growth in Algeria, Sudan and
This is despite regulation being a main concern due to the
emerging status of the industry in Africa.
In contrast, banks in more mature markets such as the Gulf
region are mainly concerned with competitive pressures and
financial metrics such as capital adequacy and liquidity.
Political instability meant the least optimistic banks came
from the wider Middle East, reflecting concerns from lenders in
Iraq, Syria and Yemen.
CIBAFI, founded in 1999 by the Jeddah-based Islamic
Development Bank, plans to conduct the survey annually to help
measure future changes in business sentiment and strategy.
It also plans to expand the scope of the survey to include
the views from Islamic insurance firms and capital markets.
(Editing by Kim Coghill)