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Wednesday, 28 June 2017

How Islamic banking will boost the UAE’s halal sector

Islamic banks’ gross credit increased 8.4 per cent to AED343 billion in the first quarter of 2017, including AED325bn domestic credit that grew 7.4 per cent that will help the UAE’s halal economy to grow faster than non-halal sectors.
The UAE’s AED522bn Islamic banking assets will help fuel the growth of the country’s halal sector, according to research by Orange Fairs and Events, organisers of the Halal Expo Dubai 2017 in September.
The meteoric rise of Islamic banking
Seven Islamic banks out of the 23 registered commercial banks in the UAE represent nearly a fifth of the country’s banking assets. Islamic banks’ assets grew more than three times the conventional banks’ assets during the first quarter of 2017, according to the UAE Central Bank’s latest quarterly report.
“In the first quarter of 2017, Islamic banks’ assets had a higher growth (3.2 per cent) than conventional assets (one per cent), while on an annual basis Islamic banks grew by eight per cent and continued to dominate the conventional banks growth that showed an increase of 5.9 per cent,” the report, issued by the UAE Central Bank, said.
“The share of conventional banks’ assets at the end of Q1 2017 is 80.3 per cent of the total, while the share of the Islamic banks assets is 19.7 per cent. Islamic banks’ financing growth has been dominating the conventional banks’ loans increase in the first quarter of 2017 in almost all subcategories, with exception of financing to government and GREs.”
Gross credit of the Islamic banks in the UAE recorded an 8.4 per cent growth to AED343bn – or nearly double the rate of 4.4 per cent growth rate of gross credit of the conventional banks in Q1 2017.
Similarly, domestic credit growth of the Islamic banks also rose 7.4 per cent to AED325bn in Q1 2017. The growth rate is nearly double than the 4.1 per cent growth in domestic credit growth of the conventional banks.
Elevated assets driving growth
Higher assets and gross credit growth rates empower the Islamic banks to fund the Halal industries and help fuel the growth of Halal or Islamic economic activities. By nature, Islamic banks engage in ethical finance and asset-based lending – that eliminates speculation-based high-risk financial activities and insulate the sector from economic crises – witnessed during the 2008-09 global financial crisis – when the asset-based ethical finance emerged stronger and helped Islamic banks to overcome the stress tests by a wider margin compared to the conventional lenders – many of whom collapsed and had to be bailed out by governments.
Islamic banks’ credit to individuals recorded a 7.6 per cent to AED126bn in the first quarter, compared to two per cent growth in the conventional banks’ credit to individuals that reached AED224bn in the q1 2017.
Raees Ahmed, Director of Orange Fairs and Events, organiser of the Halal Expo Dubai, 2017, says, “This means Islamic banks’ personal finance, Islamic credit card sector is growing at a higher rate than that of the conventional banks’ personal finance and credit card segment.
“The split between conventional and Islamic banks indicates that the growth in Islamic financing is much steeper than that for the conventional banks’ loans. This effectively means that lending in the halal sector is going up at a much higher rate than that of the non-halal sector, as was evident in the first quarter of 2017.
“Islamic banks’ credit to the business and industrial sector grew 7.6 per cent to AED151bn in the first quarter of 2017. This means that the credit growth to the halal industries and business sector remains higher compared to the non-halal industries and services sector. This is also a reflection of the UAE’s growing importance as a centre of the global halal economy.”
Muslims spend trillions in various sectors
This State of the Global Islamic Economy Report, 2016-17, estimates global Muslim spend across sectors at over $1.9 trillion in 2015, while the Islamic Finance sector has around $2trn in assets.
Food and beverage tops spend by the global Muslim population, at $1.17trn in 2015, followed by clothing and apparel at $243bn, media and recreation at $189bn, travel at $151bn, and spending on pharmaceuticals and cosmetics at $133bn.
The report estimated the revenues from halal-certified food and beverage products to be $415bn; while revenues from halal fashion clothing purchased by Muslim women to be $44bn and revenues derived from halal tourism services to be $24bn, in 2015.
The global halal products and services sector is growing at eight per cent year-on-year to $2.3trn (AED8.44trn) – higher than the GDP of more than 200 countries in the world, according to research by Orange Fairs and Events.
Of this, about 67 per cent represents the food and beverage industry, worth $1.4trn (AED5.13trn).

(AME Info - 28 June 2017)
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