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The Malaysia International Islamic Finance Center (MIFC) published in cooperation with the Islamic Corporation for the Development of the Private Sector (ICD) the latest report entitled “Islamic finance in Asia: Reaching new heights”. According to the report, Asia’s Islamic finance assets registered an annual growth of 8.4% between 2011 and 2016 and stood at $528.7bn, or 26% of the world’s Shariah-compliant financial assets, at the end of 2017. Furthermore, Asia has grown to the largest market for sukuk. $52.3bn or 52.5% of all newly issued sukuk came from Asia in 2017, with most notable contributors being Hong Kong, Indonesia and Pakistan. The region also has a global market share of 60.7% of sukuk outstanding and is market leader in Islamic funds. The report states that Malaysia, Bangladesh, Brunei and Indonesia are currently among the most developed Islamic banking jurisdictions in Asia.

Millennials are the generational demographic bracket following Generation X, which was a more consumerist, independent-minded age cohort. In the Muslim world, the Arab Spring, the Global Recession and other developments like dropping oil prices had major impact on this generation. A study by credit card firm Visa showed that Millennials make up the fastest-growing consumer segment in the GCC region. Visa estimates that Millennials in the UAE will receive an average income of $40,000 annually by 2019 which naturally makes them an important customer segment for banks. Millennials are generally savvy with digital technologies and the sharing economy. They have a more liberal approach to economics, which means that they are generally not brand-loyal but rather look for the best deal. Muslim Millennials are truly asserting their needs in Islamic finance, as they do in halal travel, food, media and fashion. For Islamic banks, this means that laggards will lose out on this very important customer segment, if they do not invest in their digital banking solutions.

#Qatar launched the world's largest single country Islamic exchange traded fund (ETF). Al Rayan Qatar ETF (QATR), sponsored by Masraf Al Rayan, is planning to create more units to meet the increasing demand. The QATR is listed on the Qatar Stock Exchange and seeks to track the performance of the QE Al Rayan Islamic Index to provide investors diversified exposure to Qatari equities. The open-ended fund, with initial assets of $120mn, is three times larger than any other ETF in Qatar and Gulf region and has pegged total expense ratio at 0.5% of net asset value, which is considered to be the lowest for any single country ETF in the region. According to Al Rayan's chief investment officer Haithem Katerji, QATR is perfect for investors seeking diversified exposure to Shariah-compliant Qatari stocks with the simplicity and efficiency of buying just one share.

The main precondition for Islamic trade finance to increase its presence in Islamic finance is a closer co-operation between banks and businesses. Experts say Islamic trade finance needs to be developed with instruments that allow better control of risks related to trade partners or countries. The Bahrain-based International Islamic Financial Market (IIFM) started a cooperation with the Washington-based Bankers Association for Finance and Trade to create an industry standard, a so-called master risk participation agreement. This standard is expected to create transparent market practices and contribute to an increase of the trade finance business on a Shariah-compliant basis. Bank Negara Malaysia is also pushing for Islamic trade financing to support 10% of the country’s total trade up to 2020. The bank is currently consulting initiatives which could include blockchain-based trade finance solutions, e-commerce and providing trade credit takaful to mitigate trade risks.

According to insurance rating firm A.M. Best, retakaful is faced with a challenging environment in a highly competitive reinsurance market. The analysts took a close look at the global retakaful market and found that new companies entered the market, but their success has been limited. Mahesh Mistry, senior director of analytics at A.M. Best, says that companies have limited access to quality business, predominantly resulting from the underperformance of the primary takaful sector. Current leading players in the retakaful market are Malaysia’s ACR Retakaful and Malaysian Reinsurance, Emirates Retakaful, Saudi Reinsurance Company, Dubai’s Takaful Re Limited and Tunisia’s BEST Re, as well as Islamic windows of conventional insurers. It is estimated that the entire business volume does not exceed $1bn in gross written premiums, while the global reinsurance market was valued at close to $600bn at the end of last year. The standalone retakaful model may be under threat over the long term, unless it is repositioned to add additional value to the reinsurance market

Qatar Islamic Insurance has reported more than 1% year-on-year rise in gross written contribution (premium) of QR316.6mn in 2017. The company’s earnings-per-share was QR4.13 compared to QR4.23 a year ago. The policyholders’ surplus registered more than 100% growth to QR16.2mn in 2017 compared to QR7.9mn in the previous year. Chairman Sheikh Abdulla bin Thani al-Thani said the company would distribute, for the eighth consecutive year, 20% surplus to all the eligible policyholders for 2017. The management of Qatar Islamic Insurance achieved these results despite a very challenging environment in 2017 due to negative impact of low oil prices on national economy.

Al Rayan Bank UK has priced its £250mn Islamic bond "Tolkien Funding Sukuk No 1" at 80 basis points over three-month Libor (London Inter-bank Offered Rate). The transaction is secured by a portfolio of prime UK, first-charge, owner-occupied, home purchase plans, originated by Al Rayan Bank. The sterling-denominated sukuk has an expected called weighted average life of three years. Proceeds raised from the sukuk issuance would be used by Al Rayan Bank to fund further growth in its asset book, which has increased by more than 23% over the last 12 months. Such residential mortgage backed securities (RMBS) are relatively rare in Islamic finance. The bank believes that there would be more opportunities to issue sukuk in the future and a higher potential for other Islamic banks to tap into the RMBS market.

The Islamic finance industry is climbing to new heights on the back of strong global demand for sustainable and socially responsible investments. According to the fifth edition of the Islamic Finance Development Report and Indicator, the growth of the industry is unabated despite an economic slowdown caused by the decrease in oil revenues. The report is the result of a joint research made by Thomson Reuters and the Islamic Corporation for the Development of the Private Sector (ICD). Mustafa Adil, Head of Islamic Finance at Thomson Reuters, says that Islamic finance can serve as a strategic tool for policymakers to cope with the slowdown, especially in the Middle East. The report estimates that the Islamic finance industry will reach a global asset volume of $3.8tn by 2022, up from $2.2tn at the end of 2016, which translates into an expected compound annual growth rate of 9.5%. The leading country remains Malaysia and the leading region the Gulf Cooperation Council (GCC).

The global takaful industry is expected grow significantly thanks to consolidation and regulatory improvement in some countries. The December 2017 acquisition of Al Hilal Takaful by Takaful Emarat in the UAE has attracted international attention for the market potential of Islamic insurance, but also the obvious necessity for consolidation. In the UAE there are no less than 34 domestic and 27 foreign conventional and Islamic insurance companies touting for a customer pool of just 10.5mn people. Saudi Arabia’s insurance market is also largely fragmented, with 33 listed takaful operators competing against each other. Saudi Arabia, the UAE, Bahrain, Oman and Qatar already introduced new regulations specific to the takaful industry, while Kuwait has a new insurance law draft. The Gulf Cooperation Council (GCC) is the largest market for takaful industry, the second-largest chunk is mainly spread over Malaysia, Indonesia and Brunei. The future potential of takaful in the GCC is certainly driven by the reduction of state benefits which increases demand for products such as life and health insurance.

Dubai's Emirates airline plans to raise as much as $1bn through sukuk before higher US interest rates push up borrowing costs. A spokeswoman said the company was constantly seeking diverse sources of funding, including bank finance, operating leases, Islamic financing, sukuk and bonds. Governments in the Gulf oil-exporting countries borrowed from international bond markets at a record pace in 2017 as they sought to cover budget deficits worsened by low oil prices. Saudi Arabia raised $21.5bn through sukuk and other bonds, followed by Abu Dhabi’s $10bn issue and Kuwait’s $8bn fundraising. Emirates raised $913mn through a sukuk issue with a 10-year lifespan in 2015. Proceeds funded the acquisition of four Airbus A380-800s, the world’s largest passenger aircraft. Airbus recently questioned the future of the A380, in case Emirates does not place a crucial order for new airplanes.

The role and status of cryptocurrencies remains a hotly disputed issue in the Muslim world. While entrepreneurs and Islamic finance startups openly encourage the use of digital currencies, others keep thinking otherwise. The latest escalation in the dispute was a fatwa against all cryptocurrencies issued by the Egyptian Grand Mufti Shawki Allam. He said that since trading of cryptocurrencies was similar to gambling, it was forbidden in Islam. His fatwa came after Bitcoin in mid-December soared to almost $20,000 per token but then lost one third of its value in just 24 hours. In addition, Egypt’s legitimate bodies also do not consider trading a virtual currency to be acceptable. However, nations that play a substantial role in Islamic finance, namely Malaysia, Indonesia, UAE, Turkey and even Saudi Arabia have no problem to accept cryptocurrencies. In Dubai, OneGram was the first company to set up the Shariah-compliant cryptocurrency called OneGramCoin. There are already two real estate developers in Dubai, which accept payments in digital currencies.

According to Qatar Central Bank (QCB) Governor Sheikh Abdulla bin Saoud al-Thani, Qatar is witnessing a robust momentum in fintech. The country is opening up increasing opportunities for digital payments, money management, lending, loyalty and rewards, remittances, investments and advisory services. Sheik Abdulla said the QCB’s recently launched new strategy would need to ensure that fintech firms are enhancing the financial system. Although there have been some success stories, he said banks and insurance companies in the region have been slow to embrace innovation. The fintech industry in Qatar remains very small, but it has seen a few startups such as Hasalty. As a mobile application, Hasalty improves financial literacy for children supported by the Qatar Business Incubation Centre.

The growing popularity of Islamic finance has led to the constant development of new Shariah-compliant investment products. Most of those products have been developed and popularised in Malaysia. Islamic Exchange Traded Funds, or Islamic ETFs have become increasingly popular among both institutional and retail investors globally. They have low management costs, high liquidity, relative safety and solid appreciation potential as a mid- to long-term investment. The main difference from conventional ETFs is that Islamic ETFs track only benchmark indices that consist of Shariah-compliant stocks or assets. An Islamic ETF is managed strictly under Shariah principles and overseen by an appointed Shariah committee. This naturally increases costs and results in higher fees compared to conventional ETFs. To tap the huge potential, Islamic ETFs need to be made cost-effective and get incentivised by governments to attract both institutional and retail investors. In the Gulf Cooperation Council (GCC) countries ETF is relatively new. In the GCC more promotion is needed to bring Islamic ETFs out of their niche.

According to Standard & Poor’s (S&P), global sukuk issuance increased 45.3% year-on-year to $97.9bn in 2017. This performance was primarily driven by good liquidity conditions in the Gulf Cooperation Council (GCC) countries. S&P head of Islamic Finance, Dr Mohamed Damak said the outlook for sukuk in 2018 looked uncertain. He added that tighter global liquidity conditions, mounting geopolitical risks and slow progress on the standardisation of Islamic finance products would continue to hold the market back. The US Federal Reserve is expected to increase rates by 75 basis points. Central banks in the GCC countries would probably mirror such an increase due to the peg of their currencies with the US dollar. Regarding retail sukuk, the agency believes that development of this part of the market necessitates a specific regulatory framework. Retail sukuk issuance has been successful in some countries where authorities provided a tax incentive to drain a portion of the savings toward this market.

According to a Qatar Financial Center (QFC) study, Qatar needs to reform interbank liquidity management to study leakages from Islamic banks through interbank finance. Moreover, there is also a need to develop a regulatory framework and promote green bonds and sukuk. So far Qatar has led the world in ensuring in the authenticity of Shariah-compliant bank assets with Qatar Central Bank and the QFC Regulatory Authority requirements separating Islamic and conventional banks. To ensure this segregation, there should be a review of interbank markets to limit flows from Islamic banks to conventional ones in their liquidity management operations using 'Murabaha'. The report also stressed the role of a centralised guidance on fit and proper criteria for Shariah scholars and promoting Fintech development.

QIIB announced that Moody’s and Fitch Ratings have affirmed its ratings at 'A2' and 'A' respectively. Moody’s said that its rating is based on several considerations, one of which is that the bank maintains high levels of liquidity and a strong capital base. Fitch explained that immediate risks from the diplomatic crisis to the bank’s overall standalone credit profile has reduced. The bank’s funding profile has generally stabilised from the back of outflows of nondomestic funding and the Qatari authorities have continued to provide funding support. QIIB's CEO Dr Abdulbasit Ahmad al-Shaibei said this strong rating was a confirmation of the strength of the Qatari economy and its ability to overcome various types of risks. He added that the ratings of Moody’s and Fitch proved that QIIB had a solid financial position, confirmed by its financial results, as in the third quarter of 2017, when the bank achieved a growth of 5.1%.

Qatar is planning to set up a central Shariah committee for Islamic banks to create consistency in Islamic finance. According to Central Bank Governor HE Sheikh Abdulla bin Saoud al-Thani, this move ensures that the country’s financial regulations are benchmarked to international standards. A recent report by the World Bank and the Bahrain-based General Council for Islamic Banks and Financial Institutions suggested further action by regulators to strengthen the sector’s governance. One of the action points of the Qatar Central Bank (QCB) is assessing remuneration and commission framework of financial advisers and insurance intermediaries and implementing an appropriate conduct of business regime. In 2016, the QCB issued new regulations for insurers on licensing, controls, accounting, risk management and actuaries’ reports and also stipulated minimum capitalisation levels and limits on risky asset classes. QCB's new strategy is looking at supporting the growth of the asset management sector through aligning requirements across regulatory frameworks.

In 2018 the expansion of Islamic finance into non-Muslim jurisdictions is set to continue. Conventional investors have started to appreciate the potential of Islamic finance at times of a persistent low-to-zero-interest rate environment. According to data collected by financial intelligence firm Dealogic, issuance of Islamic debt by non-Muslim countries climbed to a three-year high in 2017. Islamic finance is perceived by them as being more stable compared to the conventional banking system. However, the industry is likely to face a continued backlash in the GCC caused by the current economic woes in the region, particularly in Saudi Arabia. According to rating agency Standard & Poor’s, Islamic finance assets should be back in growth mode in 2018 in the GCC, but at a slow pace of just around 5%. One impulse for growth could be the creation of Shariah-compliant pension schemes modelled after Malaysia, as well as other obligatory social insurances in GCC countries. A new trend is likely to transform into a new Islamic finance asset class in 2018: green and sustainable sukuk, as part of impact investing.

The Islamic Finance Development Report and Indicator (IFDI) 2017 was presented at the 24th World Islamic Banking conference 2017 held from December 4 to 6 in Bahrain. The report was commissioned by the Islamic Corporation for the Development of the Private Sector (ICD) and put together by business intelligence provider Thomson Reuters. The report uses five indicators to measure the development of the $2.2tn Islamic finance industry, which are quantitative development, knowledge, governance, corporate social responsibility and awareness. This year, Malaysia, Bahrain and the UAE kept leading the IFDI country rankings for the fifth consecutive year, while the GCC remains the leading regional hub for the industry. Oman remained unchanged on rank four, while Saudi Arabia dropped two notches to rank seven, and Jordan, Qatar and Indonesia fell one notch each to ranks nine, ten and eleven. The big newcomer is the small Southeast Asian sultanate of Brunei, which made a jump from rank 14 to rank 9.

A report by Malaysia International Islamic Financial Center shows that the Islamic fund and wealth management sector is expected to grow significantly. The report notes that Malaysia and Saudi Arabia have the largest market share of the global Islamic funds and wealth management industry, together holding more than 67%. Saudi Arabia contributed a 35.6%-share of $25.2bn and 209 Islamic funds at end of the first quarter of 2017, while Malaysia has the most number of Islamic funds globally with 388 funds managing a total AuM of $22.6bn. The growth of the sector stems from the fact that global fund and asset managers increasingly notice the potential of this sector. Since it is now also accessible to institutional investors, as well as non-Muslim investors, they began using it as a new way to diversify investments. In a projection by Thomson Reuters, the global Islamic funds and asset management industry remains poised for growth and should increase in volume by more than 8% to $77bn by 2019.