Pakistan’s National Financial Inclusion Strategy (NFIS) relies heavily on the growth of the Islamic finance sector. According to a Moody’s analysis, Pakistan’s government and the State Bank of Pakistan (SBP) want to increase their Islamic banking market share from 17% in 2020 to 25% by 2023, based on the new NFIS targets.
A Shariah-compliant regulatory framework and the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) Shariah standard have been implemented by the government and central bank, according to the study.
For the worldwide Islamic finance industry, the analysis forecasted that the rising oil prices, faster economic recovery, and interest rate rises in 2022 would have a mixed impact. Economic recovery and rising interest rates are expected to boost loan growth in the Islamic finance sector until 2022, according to an Islamic finance industry report published by the International Monetary Fund (IMF).
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According to the ratings agency, Islamic banks’ global asset growth will also continue to exceed their conventional counterparts this year. Islamic fund assets under management are likely to grow as a result of strong fundamentals. There will be an even greater fall in 2022 in the number of sukuk issued than there was in 2021.
According to Ashraf Madani, a vice president at Moody’s, “we expect the asset growth of Islamic banks to continue to outpace their conventional peers” as the economy recovers in important Islamic financing countries. While oil prices are expected to rise, sukuk issuance will decrease in 2022.
After five years of increase, sukuk issuance decreased in 2021. Increases in oil prices, notably in the GCC states, reduced the need for government financing, and as a result, it fell 13% to $181 billion. According to the research, approximately $128 billion in issues last year had long-term maturities of more than one year.
Higher oil prices and the economic recovery in the region would help the region achieve fiscal surpluses and so lessen the need to resort to the market in 2022, according to Moody’s Investors Service.
Rising rates around the world in 2022 may dissuade some companies from entering the market. The greater issuing of financial institutions to support asset growth, government refinancing needs, and new issuers entering the market could somewhat offset the negative trend from rising oil prices and interest rates, Moody’s stated.
Recent years have seen a steady rise in the Islamic finance business. Despite the outbreak, Islamic lending grew at a compound annual rate of 10.5% in 2020 and 2021, while conventional loan growth grew at a pace of 3.4%.
In nations where Muslims make up the majority of the population, Islamic banks are able to draw in those who otherwise wouldn’t participate in the financial system for ethical and religious grounds, according to Moody’s.