ETFs to spur growth of Islamic finance assets to $4.94 trillion by 2025

Driven by a remarkable rise in the range of Islamic exchange-traded funds (ETFs), global Islamic finance assets are projected to reach $4.94 trillion in 2025.

The surge in ETFs has been attributed to fund managers in the UAE, Saudi Arabia, the United States, and Europe.

ETFs overall had a record year in 2021 with more than 900 new launches worldwide and over $1 trillion in global net inflows, taking assets under management to $9.9 trillion at the end of November, according to Invesco experts, who expect to see the continued growth of opportunities for investors looking for Shariah-compliant investment vehicles in 2022.

“Islamic finance has evolved significantly since it was established nearly five decades ago, but only in the last few years have we really seen rapid growth in investor interest and the number of Shariah-compliant products on offer,” said Zainab Kufaishi, head of the Middle East and Africa at Invesco.

“As investors around the world have started to factor sustainable considerations in their investment solutions, especially as we come out of the Covid pandemic, we have seen a rising demand for Shariah-compliant investment products which by their nature align with responsible, social and ethical values,” said Kufaishi.

According to the Islamic Finance Development Indicator (IFDI) 2021 released by Refinitiv, a London Stock Exchange Group business, 2021 witnessed several new trends in 2021, including the expansion of the fintech industry and digital banks led by the UAE, Malaysia, Indonesia, Saudi Arabia, and Bahrain.

According to the report, global assets for the industry maintained double-digit growth, rising 14 per cent to $3.374 trillion in 2020. Sukuks, the second-biggest sector in Islamic finance, grew by 16 per cent in 2020 driven by the GCC and Southeast Asia.

ETFs overall had a record year in 2021 with more than 900 new launches worldwide and over $1 trillion in global net inflows, taking assets under management to $9.9 trillion at the end of November.

Dr Chris Mellor, head of EMEA ETF Equity and Commodity Product Management, said ETFs are reputed for being simple, relatively cost-effective and efficient investment vehicles to gain exposure to diverse products, which drives much investor appeal.

“Beyond these favored characteristics, we can attribute the incredible demand that we’ve seen in 2021 to a handful of major trends, namely the rebound of global economies, the rise in stock market performance, and the increasing interest in environmental, social and governance (ESG) investing. We expect continued strong demand for ETFs with an ESG focus as investors seek investment strategies that provide exposure to companies that have a positive social and environmental impact,” said Mellor.

“Investors are looking more and more towards investments that align with their sustainability preferences and values,” said Kufaishi.

“It is an exciting time ahead for the investing community as more options and innovative products come to market in response to this increase in demand.”

— issacjohn@khaleejtimes.com