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Still room for deepening of takaful product
Madha contends that there is still significant room for deepening of the takaful product portfolio. In order to grow, Islamic financial institutions will have to work hard to offer a wider range of products, so that they might take advantage of what is undoubtedly an underpenetrated market. They will also have to develop greater awareness of takaful products and services, among customers.
"Insurance in the most general sense covers all risk mitigation products, and there's a vast swathe of risk mitigation products in the Western world which haven't yet been replicated in the takaful world," he says.
"Part of that is that they haven't been replicated in the emerging markets, or even much outside the US, which tends to be the most advanced market," Madha continues. "It's all to do with familiarity: once customers are more aware of the idea of unemployment insurance or personal liability insurance, then those categories will become more popular."
Demand for trade financing, meanwhile, is expected to rise as the Gulf economies develop their non-oil exports. In the UAE, for example, a November 2010 survey of HSBC customers found that around half of small businesses said they expected their need for trade finance to increase from 2009 to 2010, as they rely more heavily on banks to finance their export and import activity and receivables. The bank said that its own trade financing activity on exports was up 75% in the country, adding that a $100m fund established for small customers' trade finance needs, was more than 70% drawn.
At AAOIFI, Dr Alchaar argues that economic growth in both the Gulf and Asia is likely to be among the strongest in the world in the coming years. Trade between the two regions will increase as a consequence, and this should present a "compelling opportunity" for the rise of trade financing through Islamic finance, as well as the development of trade flows between the Gulf and Asia.
According to estimates from the Economist Intelligence Unit, there is likely to be $100bn in outward investment from East to West over the next five years to 2016. Sharia-compliant financing is likely to lie at the heart of the capital raising that will take place between Asia and the Middle East, and Gulf markets are building strong ties with key Asian allies, in anticipation of the coming capital rush.
"Capital flows between the Gulf and Asia are likely to increase, and Islamic finance can play its role to facilitate them," insists Dr Alchaar. "Again, the rise in Islamic finance activity is to follow the rise in overall economic activities."
