21 февраля 2020 г.

With the ever increasing globalization of financial markets, Islamic finance is gradually gaining recognition throughout the world. As wealth in Muslim-majority countries is expected to increase in the future, the role of Islamic finance, which attempts to reconcile theology and modern portfolio theory, is also expected to grow.

To learn more about Islamic finance, its growth potential and opportunities in Russia and the CIS, CFA Association Russia held a joint evening seminar with EY Academy of Business. CFA Russia invited Svetlana Pavlova, CFA, assistant vice-president of Moody’s Investors Service, to share her expertise on the topic.

Islamic finance follows the core principles of Sharia law, including a ban on interest rates (“riba”), prohibits uncertainty in financial contracts (“gharar”), does not allow investing into unlawful assets, such as arms, tobacco, alcohol, gambling; requires profit and loss sharing, and demands that all financial transactions are based on tangible underlying assets.

In essence, Islamic finance is a form of socially responsible investment, as in Muslim-majority countries the religion does not differentiate between the spiritual and secular, and therefore, enters the domain of finance.

Key Islamic banking markets have been Saudi Arabia, United Arab Emirates, and Malaysia. Surprisingly, the Islamic banking sector in the UK showed a 27-percent increase between 2013 and 2017, while the traditional banking sector rose by about 6 percent.

Obviously, the assets of Islamic banks in the UK are much smaller than those of the traditional banks; however, due to the low base effect their growth is translated into a larger percentage change, Svetlana explained.

“The word Islamic in this particular practice does not mean that only Muslims use it. Everyone is welcome to use the services of an Islamic bank,” the speaker said.

Islamic banking assets expected to grow in the CIS

Although currently the amount of Islamic banking assets is very small in most CIS countries (Kyrgyzstan, which is the leader among the CIS countries, has only 1.4 percent penetration rate), the speaker predicts that with an increasing public awareness and government support the share of Islamic banking in Central Asia will increase. Funding from the Islamic Development Bank (IDB) will be another catalyst for future growth, Svetlana explained

Having a low base (similar to the UK), and with increasing government efforts to develop the appropriate institutional framework and regulation, the sector is projected to show a rapid expansion in the CIS.

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