Views from the Asia trading floor

A brief overview of Islamic finance in Asia

Two decades of impressive growth

The Islamic finance industry has grown substantially over the last two decades, and Asia in particular has played a significant role in this growth. As at end 2017, the region’s Islamic financial assets amounted to USD 528.7 billion, or 26% of the world’s sharia-compliant total. It is also the largest market for both Islamic bonds (sukuk) and Islamic funds (Chart 1). Asia contributed to 60.7% of global sukuk outstanding and 42.8% of global Islamic assets under management (AUM) as at end 2017.1

Chart 1: Asia’s Islamic financial assets, by sectors
Chart 1: Asia’s Islamic financial assets, by sectors
Source: Islamic Financial Services Board (IFSB) and Malaysia International Islamic Financial Centre (MIFC), as of end 2017
Sharia funds: Malaysia leading the way

In 2017, the Securities Commission Malaysia (SC) issued an ‘Islamic Fund and Wealth Management Blueprint’, with the intention of enhancing the country’s draw as an international Islamic finance centre. The blueprint proposed several initiatives, helping Malaysian fund managers to establish track records and attracting more institutional and global investors. The universe of Islamic equities and sukuk have been broadened under the Malaysian government and the SC’s support and expertise. Growth continues to be concentrated in Southeast Asia, but government initiative have enabled Malaysia to remain a front runner in the area’s sharia fund market. By the end of 2017, Malaysia’s sharia-compliant AUM for mutual funds had reached USD 28.4 billion, an increase of 20%, according to data from the SC. Between 2013 and 2017, Malaysia’s sharia funds catering for high-net-worth individuals increased their AUM by 23% on a compound annual growth rate basis.

Socially responsible investing

Global awareness of socially responsible investing (SRI) has also grown prominently given the rising demand. Both individual and institutional investors are seeking investment tools that support ethical and sustainable development while providing competitive returns. With Islamic funds being recognised as part of the SRI universe, Malaysia is currently the largest SRI funds market in Asia (excluding Japan) with a 30% market share.2 The substantial size of SRI AUM provides significant potential for fund administration and investment support services firms to serve both the Islamic and SRI funds segments.

1 Source: Bloomberg, December 2018. 

2 Source: Malaysia International Islamic Financial Centre (MIFC), April 2018.