Shariah-complaint Financial Product During Covid-19

Gulf Cooperation Council (GCC) countries and Malaysia to help drive growth in Shariah-compliant financial products though the Covid-19 coronavirus may disrupt sukuk issuance.
Islamic finance is set to keep expanding in 2020 and beyond but the downside risks are rising which could dissuade issuers to come to the market.

Sukuk issuance to remain stable at around US$180bil this year, and the takaful insurance market will see steady growth as insurance premiums pick up in newly penetrated markets. However, downside risks are rising because of the coronavirus outbreak, as prolonged market disruption could dissuade issuers from coming to market.

Islamic financing asset growth will continue to pick up in 2020, underpinned by strong demand across core Islamic markets. Additionally, mergers between Islamic and conventional banks in the GCC will drive one-off increases in assets, as they did in 2019.

Saudi Arabia (A1 stable) will remain the world's largest Islamic banking market, while the sector will continue to expand rapidly in Malaysia. Sukuk issuance will stabilize after growing for four consecutive years.

Sukuk issuance is expected around US$180bil in 2020, after a 36% rise in 2019 to US$179bil. Continued focus on this industry and increased activity by the governments of the core Islamic finance markets, regionally and internationally, will support issuance. The deficit financing needs of some GCC sovereigns, amid weaker oil prices and higher sukuk refinancing, will also provide support.

Corporate issuance in asset-backed sukuk will remain limited because of more attractive conventional market opportunities. Nevertheless, sukuk issuance from these sectors could help to underpin the industry's longer-term potential.

Global demand and regulatory developments will continue to fuel growth in Islamic insurance. Global demand for takaful – Islamic Shariah-compliant insurance – driven by relatively low insurance penetration in Muslim countries, continues to fuel growth in premiums.

Continued pressure from weaker economic expansion to hinder, but not halt, growth in this sector which will remain propelled by demand and regulatory changes in the takaful regions that aim to foster appetite.