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Islamic Finance: saviour in the downturn? - Dan Taylor

The last few years have seen the Islamic Finance sector expand rapidly, on the back of Gulf oil-driven liquidity and a growing number of Muslims seeking products compliant with their beliefs. The latest calculation of market size for Islamic finance was US $638.3m which represents growth of some 28% over 2007*.

The failure of Western banks which borrowed on the money markets and traded derivatives - neither of which is permitted under Islamic law - could spur growth outside the traditional Muslim target market.

BDO in conjunction with the Economist Intelligence Unit surveyed over 170 financial institutions this August to understand if this growth was expected to continue, the products and services which are deemed most attractive, and the barriers that institutions feel that may hinder further growth.

Roughly one-third of respondents thought that Dubai would be the leading international centre for Islamic finance issuance and investment in 2012 with London the second most popular choice.

Our respondents were optimistic with over half expecting the Islamic Finance market to expand by between 10% and 20% over the next three years. Just 3% of respondents did not expect the market to grow. However, despite their optimism, over 40% of respondents identified the shortage of industry expertise and regulatory harmonisation as being the two main barriers to growth

These results show that there is great potential for further growth for Islamic financial services, particularly in the UK. Financial services firms now need to start positioning themselves to take advantage of this market whilst understanding the challenges they will face.

I will be launching our report at a breakfast briefing on Thursday 15th October at London’s Dorchester Hotel. I will be joined by Dr Alchaar from AAOIFI in Bahrain and Mr John Weguelin, formerly the CEO of the European Islamic Investment bank, who will provide their perspectives on the market.


* Source: The Banker, November 2008

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