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UAE’s Islamic finance strategy set to boost global sukuk market
The sukuk market is dominated by Malaysia and Saudi Arabia, but the UAE’s projected growth will solidify its position as the third-largest contributor
- PUBLISHED: Sun 18 May 2025, 9:07 PM
The UAE’s ambitious plan to expand its Islamic finance sector by 2031 is set to propel the industry to new heights, reinforcing the country’s position as a global leader in sukuk issuance and Islamic banking, according to reports from Moody’s Ratings and Fitch Ratings.
The initiative, which aims to nearly triple Islamic banking assets and significantly boost sukuk issuance, is deemed credit positive for UAE Islamic banks, promising enhanced profitability and liquidity management.
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The UAE government has outlined a goal to increase Islamic banking assets from Dh986 billion ($268 billion) to Dh2.56 trillion ($697 billion) by 2031. Additionally, locally listed sukuk are targeted to reach Dh660 billion ($180 billion), with international sukuk climbing to Dh395 billion ($108 billion).
In 2024, the UAE issued $12.7 billion in sukuk, with local banks contributing $4 billion, reflecting the sector’s growing momentum. By Q1 2025, the UAE’s Islamic finance industry was valued at over $285 billion, with sukuk comprising 18 per cent of the nation’s debt capital market.
Moody’s Ratings highlighted the initiative’s positive impact on Islamic banks, particularly market leaders Dubai Islamic Bank (7.8 per cent market share) and Abu Dhabi Islamic Bank (5.1 per cent market share). “This strategy will allow banks to invest in high-quality, higher-yielding sukuk, reducing reliance on low-yield cash placements with the central bank,” said Abdulla AlHammadi, a Moody’s analyst. “Fee income is also expected to rise due to increased business volumes.”
The initiative, overseen by a new committee chaired by the UAE Central Bank governor, is anticipated to strengthen regulatory frameworks, fostering sustainable growth.
The UAE’s Islamic banks already account for over 17 per cent of the country’s banking system assets as of January 2025. The global sukuk market, valued at $242 billion in 2024, is dominated by Malaysia and Saudi Arabia, but the UAE’s projected growth will solidify its position as the third-largest contributor. With a 6.5 per cent share of global sukuk outstanding in Q1 2025, the UAE ranks fourth globally and is the fourth-largest US dollar debt issuer among emerging markets (excluding China). It also stands as the third-largest issuer of ESG bonds and sukuk.
Fitch Ratings noted that 92.1 per cent of the $28 billion in UAE sukuk rated by the agency in Q1 2025 were investment grade, with 39.2 per cent in the ‘A’ category, 34.5 per cent in ‘BBB,’ and 18.5 per cent in ‘AA.’ Financial institutions represent 50 per cent of sukuk issuers, with the remainder split across corporates, infrastructure, project finance, and sovereign entities. No rated Islamic finance issuer or sukuk defaulted in 2024 or Q1 2025, underscoring the sector’s stability.
Nasdaq Dubai remains a global leader in dollar sukuk listings, outpacing conventional bonds and equities in 2024. Sukuk issuance across all currencies surged 28 per cent year-on-year to $6.5 billion in the first four months of 2025, compared to a 6.7 per cent rise in conventional bonds. Following market volatility in April 2025, driven by US tariff hikes, UAE issuers favoured sukuk over conventional bonds for dollar debt capital market access.
Despite the optimistic outlook, Fitch cautioned that competition from conventional banks with strong government ties and evolving Shariah-compliance requirements could pose challenges. However, the Central Bank of the UAE’s Higher Shariah Authority is actively standardising practices, and efforts are underway to develop a sustainable Islamic alternative to dirham M-Bills.
Islamic finance industry analysts noted that the UAE’s strategic push not only enhances the resilience and profitability of its Islamic finance sector but also positions it as a pivotal player in the global sukuk market. With strong regulatory support and a diversified issuer base, the UAE is well-poised to achieve its 2031 targets, driving sustainable growth and investor confidence, they added.
