Sharjah 24 – WAM: The Islamic finance sector in the UAE has seen remarkable growth, benefiting from a dynamic economic environment and progressive regulatory policies that foster Sharia-compliant financial activities.
Growth of Islamic finance since 1975
Since the establishment of the UAE’s first Islamic bank in 1975, the sector has become a critical pillar of the national economy, encompassing Islamic banks, Islamic windows in conventional banks, and sukuk (Islamic bonds). These elements have experienced rapid growth in both domestic and international markets.
UAE's commitment to Islamic finance
The UAE government has consistently supported the development of economic policies and legislation that enhance Islamic finance, positioning the country as a global hub for the Islamic economy. In the 2022 State of the Global Islamic Economy Report, the UAE ranked among the top three Islamic economies for the third consecutive year. Additionally, in the 2023 Islamic Finance Development Indicator (IFDI), the UAE ranked fourth globally in Islamic financial markets by assets.
Growth of Islamic banks and sustainability strategies
As of September 2024, Islamic banks accounted for 22 percent of the UAE's total banking credit, with investments reaching AED152.3 billion. Fitch Ratings projects that Islamic banks in the UAE will continue to outpace their conventional counterparts in growth. A recent study by the Central Bank of the UAE (CBUAE) revealed that 79 percent of Islamic banks in the UAE have sustainability strategies, with the majority having them approved at the board level, signaling a strong commitment to sustainability.
Expansion of sukuk market
The UAE has experienced significant growth in the sukuk market, notably with the introduction of dirham-denominated Islamic Treasury Sukuk, which has encouraged broader sector participation. The issuance of Green Sukuk since 2019 has driven growth in sustainable financing, making the UAE the leading issuer of sustainability sukuk in the region and the second globally. Sukuk and bond issuances in the UAE reached US$294.4 billion by Q3 2024, with sukuk accounting for about 20 percent of total issuances.
UAE’s position in global debt markets
The UAE's debt capital markets are expected to surpass US$300 billion by the end of 2024, propelled by strategic initiatives designed to attract regional and international investors. Fitch Ratings notes that the UAE holds 6.6 percent of the global sukuk market and ranks fourth globally in all currencies. The UAE is also one of the largest issuers of US dollar debt in emerging markets, excluding China, with a share of 8.9 percent of total debt issuances in the first half of 2024.
Outlook for the future of Islamic finance
S&P Global Ratings projects continued strong growth in the UAE's Islamic finance sector, supported by the robust performance of the non-oil economy. The COP28, held in the UAE, underscored the alignment between Islamic finance principles and sustainability, further positioning the sector to drive sustainable development and ensuring its continued growth.
Dubai as a leading global sukuk hub
The UAE remains a key destination for sukuk issuances, with Nasdaq Dubai being the world’s largest exchange for sukuk. As of December, the total value of sukuk listed in Dubai reached US$98.9 billion, cementing the UAE’s leadership in the global Islamic finance market.
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