Praesidium LLP and DIFC Produce the First Comprehensive Guide to Islamic Finance. (PDF 180pages)

The Islamic finance industry is expected to more than quadruple in value within a decade from its current size of between $800 billion and $1 trillion, as it captures the savings of half of the world's 1.6 billion Muslims, a new study predicted on Monday.

The industry, which offers Shariah-compliant financial services, is expected to grow 15-20 percent annually to more than $4 trillion in invested funds in about 8-10 years, Praesidium, a consulting company, and the Dubai International Financial Centre (DIFC), said in a report.

"The market for Islamic finance is relatively untapped," Abdulla al-Awar, the chief executive of DIFC told Maktoob Business. "The financial crisis raises questions on issues such as sub-prime lending and over leveraging of debt instruments, both of which are not permitted under Islamic finance. So the prudential aspect of Islamic finance is especially attractive during the financial crisis."

Ratings agency Standard & Poor's said in May that the $700 billion global Islamic finance market would weather the economic downturn better than banks that charge interest, and that the long-term pipeline for sukuk - Islamic bond - issuance was healthy.

The report, published by Praesidium and released by the DIFC on Monday, said current market penetration of Shariah-compliant financial products is about 20 percent of the Arab population.

"This figure is expected to rise dramatically and it is expected that within the next decade, 50 to 60 percent of the total savings of the world's Muslims will be in the form of Shariah compliant products," the report said.

Consulting company Ernst & Young said recently that while the appetite for sukuks declined along with international debt issuance in the economic downturn, the first quarter of 2009 saw sukuk issuances oversubscribed many times.

A revival of the sukuk market is expected in the second half of this year and in 2010. Ernst & Young estimates the sukuk market will issue $27.5 billion in bonds this year.

The report by Praesidium and DIFC said assets under management in Islamic funds are estimated to be between $50 billion and $70 billion and the total value of sukuks issued is valued at more than $88 billion, of which $13 billion - or 15 percent - are listed on NASDAQ Dubai.

DIFC's Awar said Dubai will continue to remain the heart of Islamic finance.

"Dubai has the natural advantage both in terms of demography and geography. Dubai is strategically located in a region which boasts two-thirds of global oil reserves," he said.

"This region also represents a large and wealthy Muslim population, increasingly demanding Shariah compliant financial products."