ADB sees bright outlook for Islamic finance in Asia

Islamic finance could help lower cost of financing well-structured investments.

The Asian Development Bank said the outlook for Islamic banking in Asia is bright, given the region’s strong economic and financial fundamentals, coupled with growing middle-class affluence and increased awareness of Islamic finance as a mechanism for promoting financial inclusion.

ADB noted that the Islamic financial services industry has seen tremendous growth in the continent, with a number of countries successfully incorporating Islamic finance into their financial systems. Islamic finance has been enjoying growth rates of 20% annually, most of which comes from Asia. ADB expects to see increased activity in Thailand, China, Bangladesh and India and in more traditional market such as Malaysia, Indonesia and Pakistan. In 2009, the ADB established a US$500 million Shariah-compliant equity investment fund with the help of the Islamic Development Bank. The fund was first of its kind in Asia.

A year later, the ADB completed its first Shariah-compliant project financing by providing credit enhancement to two wind farm projects in Pakistan. ADB said Asia needs to invest US$8 trillion in overall national infrastructure. It believes the use of cross-border financing and investment through Islamic finance will help widen the investor base and lower the cost of financing for well-structured investments.