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The IFSB’s Islamic Financial Services Industry (IFSI) Stability Report 2023 presents an assessment of the key vulnerabilities, resilience, and future outlook of the global IFSI in general and in the IFSB member jurisdictions in particular across three key segments: Islamic banking, Islamic capital market and Takaful.

IFSI Stability Report 2023 is divided into three chapters. The period of coverage for all the key segments’ data is for the full year 2022.

Chapter One of the report provides updates on the key trends in growth and developments, analytical and structural outlooks across the Islamic banking, Islamic capital market and Takaful sectors.

In Chapter Two, a detailed assessment of the resilience of the three sectors of the IFSI is provided based on technical analyses and interpretation of the likely implications of the selected stability indicators. Recognition is given to the effectiveness of various policy measures adopted in various jurisdictions to ensure the stability and resilience of the IFSI.

Chapter Three covers critical issues in the IFSI with a particular focus on liquidity management tools in Islamic banking, Islamic non-banking financial institutions, and lessons learned from the Silicon Valley Bank collapse.

IFSI industry experienced structural development and was estimated to be USD 3.25 trillion. However, the recovery of the global economy faced obstacles such as rising global inflation, soaring oil and commodity prices, disruptions in supply chains, and geopolitical uncertainties.

The balance of risks tilted towards the downside as several factors impacted financial stability. These factors included Russia-Ukraine crisis, rising debt levels, and limited fiscal support. Financial stability risks increased, and the risk of a financial recession grew globally. Central banks faced the challenge of balancing post-COVID-19 economic recovery with financial stability, leading to tightened global financial conditions.

Given the presence of several potential downside risks, global growth projection for 2023 is lower at 2.9% compared to the pre-pandemic 20-year average of 3.8%. In 2023, the recovery in advanced economies and emerging markets is expected to be slow.

Within the IFSI, Islamic banking remained dominant, with an asset size of USD 2.25 trillion, accounting for 69.3% of the global IFSI assets, followed by Islamic capital markets which has a share of 29.8%.

The Islamic capital market segment, including Sukuk, Islamic funds, and Islamic equities, experienced slower growth rates compared to previous years. The Sukuk sub-segment, which retained its dominance, grew by 7% in 2022, while Islamic funds grew marginally by 1.0%.

The overall Islamic capital market (ICM) segment, consisting of Sukuk, Islamic funds, and Islamic equities registered a slower, single-digit, growth rate for the first time in five years.

Outstanding Sukuk are valued at USD 830 billion with majority of Sukuk originating in GCC ($356.6 billion) and in Southeast Asia ($411.4 billion). Unfavorable global economic conditions and reduced sovereign issuances affected the growth of Sukuk, while Islamic equities and funds were impacted by market volatility and liquidity strain.

The Takaful segment demonstrated resilience in the face of tightened global financial conditions. It remained strong despite financial market volatility, natural disasters, and their impact on the segment’s investment portfolio.

Nonetheless, in many jurisdictions, financial digitalization has proven crucial for quickening post-COVID-19 recovery via enhanced financial intermediation and broadened financial inclusion. Overall, the global IFSI showed soundness and resilience in 2022 but faced significant challenges due to the dynamics of economic recovery, financial stability, and the peculiarities of different jurisdictions practicing Islamic finance.

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