Thomson Reuters and ICD launch the Islamic Finance Development Indicator
Thomson Reuters, the world’s leading provider of intelligent information for businesses and professionals, and Islamic Corporation for the Development of the Private Sector (ICD), the private sector development arm of the Islamic Development Bank (IDB), today released the key findings of the Islamic Finance Development Indicator (IFDI) Report 2015.
The report was launched at the World Islamic Banking conference (WIBC) held in Bahrain under the patronage of His Royal Highness Prince Khalifa bin Salman bin Hamad Al Khalifa, Prime Minister of the Kingdom of Bahrain.
The report, which was released for the third consecutive year, examines the key statistics and trends across five indicators that are deemed to be significant for measuring the development of the US$1.8 trillion Islamic finance industry. These include Quantitative Development, Knowledge, Governance, Corporate Social Responsibility and Awareness. These indicators are tracked across 108 countries, which had contributions in all or some of these indicators.
According to the report, Malaysia leads IFDI again while GCC countries continue to dominate the top of the rankings for a third year in a row. Among the GCC countries, Bahrain maintained its second position globally, while UAE switched positions with Oman to come 3rd, with the latter dropping to 4th. Saudi Arabia, which is the world’s 2nd biggest jurisdiction in terms of Islamic finance assets, jumped to 6th from 9th overall, largely due to improvement in its CSR activities.
Pakistan, Jordan, Hong Kong, India, Botswana and Ivory Coast are some of the countries that have demonstrated positive movements in the IFDI 2015 ranking.
Khaled Al Aboodi, CEO of ICD said: “As the leading Islamic finance institution supporting private sector development across the Islamic world, we recognize that the industry requires effective holistic measures to focus our efforts to facilitate and ensure inclusive financial sector development. The ICD-Thomson Reuters Islamic Finance Development Indicator (IFDI) is one of our key initiatives to assess the current states of the overall health of the Islamic finance industry and measure growth potential for each country. The indicator is the leading global reference for Islamic finance development for all users including Policy Makers & Regulators, Investors & Financial institutions, Sharia scholars, research and training departments interested in Islamic Finance.”
Islamic Finance Assets grew by 9.4 percent to reach $1.814 trillion in 2014
In 2014, global Islamic finance assets climbed to $1.814 trillion, representing a 9.4 percent rise from $1.66 trillion in 2013. This increase was driven by strong growth in all sectors — Islamic banking, takaful, sukuk and Islamic funds. The value of assets in the Islamic finance sector is expected to increase by 10 percent per annum over the next five years, reaching $3.24 trillion by 2020.
“The Islamic finance industry has demonstrated tremendous growth over the last few year. We have seen the industry develop a conducive eco-system that made it possible for many countries to enter this space. Currently, there are more than 1,000 Islamic financial institutions most of which are located in the GCC and Southeast Asiaad we expect this number to increase significantly in the next decade,” said Nadim Najjar, Managing Director, Middle East & North Africa, Thomson Reuters
378 institutions provided Islamic finance education in 2014
The number of Islamic finance degrees and courses as well as research papers increased in 2014, with 2013 leaders Malaysia, Bahrain, and Jordan retaining their leadership positions on the Knowledge Indicator for 2014.
378 institutions offered Islamic finance education in 2014. Malaysia and UK co lead 36 countries that offer Islamic finance degrees, with 141 institutions offering Islamic finance courses.
On the Research sub-indicator, there were 1,490 Islamic finance research papers published in the past 3 years (2012-2014). There is a substantial gap between Malaysia’s research output and that of the other countries.
Governance indicator highlights more transparent and secure financial markets
Bahrain and Malaysia maintained their respective 1st and 2nd positions on the overall Governance indicator, which considers three factors: Regulations, Corporate Governance, and Shariah Governance. There remains a huge gap between the two leaders and the rest of the countries.
Bahrain, Malaysia, Pakistan, Nigeria, and Indonesia are the jurisdictions with the most complete set of Islamic finance regulations. These are the jurisdictions providing best practice models for Islamic finance governance, and which are considered as models by new markets such as France, Germany, Ghana, and Russia.
In 2014, there were 953 Shariah scholars practising in the global Islamic finance industry. 75 percent of the 953 scholars practise primarily in the top 10 countries of the IFDI.
On Corporate Governance, Oman, Maldives and Kuwait are the strongest, with South Africa and Malaysia not far behind by the number of corporate governance items disclosed and the composition of Board, and Risk Management and Audit committees.
Saudi Arabia outright leader on CSR indicator with highest amount of zakat disbursed
There is a serious lack of disclosure of CSR activities and funds disbursed. Only 25 out of 108 countries that make up the IFDI universe contributed to the CSR indicator. Of the 25 countries that had any CSR Disclosure, not all institutions disclosed the amount of zakat, charity or qard al hasan funds. As per available data, total CSR funds disbursed in 2014 amounts to US$ 526 million, which we know is significantly lower than the actual funds disbursed.
Palestine was the only jurisdiction whose financial institutions all disclosed CSR activities and funds disbursed. Saudi Arabia disbursed the most CSR funds (driven by mandatory zakat payments), resulting in its leadership on the CSR Funds sub-indicator. There is a very big gap between Saudi Arabia and 2nd placed Jordan. All other GCC states are in the top ten save Qatar, which was in 14th place.
Top-line Islamic finance issues still central themes at seminars and conferences
Islamic finance continued to make headlines in 2014 through news, conferences and seminars. The number of seminars grow to 142 in 2014. Conferences also grew to reach 122 in 2014 from only 76 in 2012.
There was also 19,000 exclusive news and 131,000 regional news on Islamic finance globally. This increased from 14,000 exclusive news and 83,000 regional news in 2013, which is unsurprising as many countries are becoming increasingly interested in Islamic finance.
Malaysia rose to lead the Awareness indicator while Oman dropped to 4th from 1st in 2013. Likewise, Bahrain and UAE each moved up a notch to 2nd and 3rd respectively, while Pakistan over performed, particularly in seminars compared to last year. By regions, the GCC made the most headlines, but Southeast Asia and Europe hosted more Islamic finance-related events.
ICD Thomson Reuters Islamic Finance Development Report 2015 is also sponsored by Tawreeq Holdings, the only Sharia-complaint SCF provider.
ICD Thomson Reuters Islamic Finance Development Indicator Background:
The ICD Thomson Reuters Islamic Finance Development Indicator is a composite weighted index that measures the overall development of the Islamic Finance industry by providing an aggregate assessment of the performance of all its parts, in line with the objectives of Islamic principles.
It is a global level composite indicator with country and unit specific level indicators. The composite indicator is released annually, featuring a full report detailing each country and unit specific level indicator and their raw numbers.
Each indicator within the composite indicator’s constituents will be equally weighted and aggregated, i.e. all variables are given the same weight. In addition, normalization is required prior to any data aggregation as the variable indicators in a data set have different measurement units.
For the Country Composite Indicator level, country indicators are normalized to allow for meaningful comparisons over time for a given country and between countries. Various economic indicators (e.g. population size) will be considered while measuring the health of the Islamic finance industry in each country.
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The Islamic Corporation for the Development of the Private Sector (ICD) is a multilateral organization, part of the Islamic Development Bank (IDB) Group. ICD was established in November 1999 to promote economic development of its member countries in accordance with the principles of the Sharia through private sector development. ICD encourages the establishment, expansion and modernization of private enterprises through financing private sector enterprises or projects. Projects are selected based on their contribution to economic development considering factors such as creation of employment opportunities and contribution to exports. ICD also provides advice to governments and private sector groups on policies to encourage the establishment, expansion and modernization of private enterprises, development of capital markets, best management practices and enhance the role of market economy. ICD operations complement the activities of the IDB.