Ernst & Young has warned that institutions in the $1trn
Islamic finance industry urgently need to upgrade their business
models to tap mainstream segments.
E&Y said Islamic institutions lacked differentiation from
non-Sharia banks and needed to consider the effectiveness of
existing Sharia governance to tap growth.
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Growth levels reached more than 20% per annum in previous years,
but under-investment in analytical tools and data scarcity meant
previously buoyant growth rates slumped in 2010.
Islamic institutions squeezed by high costs
The Big Four firm said Islamic institutions tap only a small
fragment of asset classes, while operating costs remain higher than
conventional banks.
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By GlobalDataEarlier studies from Ernst & Young suggest that the takaful
(insurance) and waqf, (Islamic endowment) industries could be two
areas of potential growth for Islamic financial institutions.
Ernst & Young’s World Takaful Report estimated the
insurance sector is expected to grow from an estimated $9bn in 2009
to $25bn by 2015. The Islamic endowments wealth pool is
estimated at about $105bn.
Ernst & Young’s Islamic Funds and Investment Report
2010 confirmed that more than half the Islamic fund managers
may be operating with less than the minimum asset under management
needed to remain viable. The opportunity is for global fund
managers as well as for consolidation within the industry.
