Islamic finance sees new players attracted by soaring profits

The Islamic finance sector boasts a growing number of players that are attracted by soaring profits. Moreover, the sector is characterized by unabated demand and government support, especially in the Middle East and Muslim Asia, a special report by Moody’s Investor Service has said.
Questions about the growing sector of Islamic finance are addressed in the Moody’s report, "Frequently Asked Questions: Notable Trends in Global Islamic Finance", that explores the key factors that are expected to shape the future of Shari'ah-compliant finance across a number of relevant jurisdictions.
"We have seen a mushrooming of new Islamic financial institutions (IFIs), and Moody's new report seeks to explain the reasons for this," said Anouar Hassoune, a Moody's Vice-President Senior Credit Officer and author of the report.
"This also explains why consolidation is not on the agenda of Islamic financiers at this stage: microenomomic theory says that a growing and profitable market provides enough space for a sizeable number of newcomers," he said.
The report also emphasises the expectation that the expansion of the Islamic financial industry will lead to further diversification. Benefits are expected to be extracted not only from increasing sophistication and further innovation, but also from growing operating and geographic diversification.
While new Shari'ah-compliant business lines are gaining ground, especially in investment banking, IFIs are exploring new horizons across a wide range of territories starting from their Asian and Middle Eastern platforms. Africa, the Americas, and Europe (especially the UK, but also countries in continental Europe like France) have been identified as very attractive potential markets. The report especially focuses on the case of France, home to the largest Muslim community in the western hemisphere.
"Paris aims to compete with London as a European hub for Islamic finance, thus making Paris more attractive to international finance, including its more alternative subsectors like Islamic finance," added Hassoune.
The report looks at how investors and financiers seem to perceive the Islamic financial market, its strengths and also its weaknesses. It also outlines Moody's view of the challenges that the sector still faces, as well as the rating agency's outlook for its future.