The global sukuk market is gearing up for a significant expansion in 2025, with total issuances projected to reach between $190 billion and $200 billion. This expected growth underscores the resilience of Islamic finance and highlights the strategic role of the Gulf Cooperation Council (GCC) region in driving the sukuk market forward. The rising interest in sukuk, a Sharia-compliant financial instrument, demonstrates its growing appeal to both issuers and investors across the globe.
Performance in 2024: A Steady Foundation for Growth
In 2024, global sukuk issuances reached $193.4 billion, slightly lower than the $197.8 billion recorded in 2023. While the marginal decline reflects the market’s sensitivity to global economic conditions, it also sets the stage for a robust recovery. A key highlight of 2024 was the remarkable 29% increase in foreign currency-denominated sukuk issuances, which surged to $72.7 billion.
Saudi Arabia and Kuwait played pivotal roles in this performance, with banks, corporations, and the Saudi government actively participating in the market. The proactive approach of these nations reflects the GCC’s broader strategy to leverage Islamic finance as a critical tool for economic diversification and sustainable development. In addition to these frontrunners, financial institutions in Qatar and Oman also increased their presence in the sukuk market, signaling a more inclusive regional effort.
Interestingly, the United Arab Emirates (UAE), despite its advanced financial infrastructure, recorded a marginal decline in foreign currency sukuk issuances. This trend, however, does not diminish the UAE’s overall contribution to the Islamic finance ecosystem, as the nation continues to be a key player in promoting Sharia-compliant financial solutions.
The Rise of Sustainable Sukuk
The sustainable sukuk segment has emerged as a dynamic and increasingly relevant part of the Islamic finance market. In 2024, the total volume of sustainable sukuk issuances reached $11.9 billion, up from $11.4 billion in 2023. This growth underscores the alignment between Islamic finance principles and global sustainability goals, particularly in the context of climate action and green financing.
Saudi Arabia led the sustainable sukuk market, contributing 38% of the total issuances in 2024. This leadership was largely driven by local bank issuances, reflecting the Kingdom’s commitment to embedding sustainability into its financial system. The UAE, while experiencing a 60% decline in sustainable sukuk issuance compared to 2023, still accounted for 15% of the total volume, highlighting its ongoing efforts to integrate environmental, social, and governance (ESG) considerations into its financial framework.
The Middle East as a whole accounted for 25-30% of global sustainable sukuk issuances, demonstrating the region’s growing focus on balancing economic development with environmental stewardship. Industry experts predict that the volume of sustainable sukuk issuances will remain steady at around $10 to $12 billion in 2025, barring significant regulatory or policy-driven accelerations in net-zero commitments.
Economic Diversification Fuels Demand
The GCC’s ambitious economic diversification initiatives are a driving force behind the growing demand for sukuk. As regional governments pursue large-scale infrastructure projects and renewable energy investments, the need for Sharia-compliant financing has risen significantly. These projects are part of broader visions, such as Saudi Arabia’s Vision 2030 and the UAE’s Net Zero by 2050 strategy, which aim to reduce dependency on oil revenues and build resilient, diversified economies.
Sukuk has emerged as a preferred instrument for financing these initiatives due to its inherent alignment with Islamic economic principles, which emphasize risk-sharing and ethical investments. This alignment not only attracts investors from Muslim-majority countries but also appeals to a growing base of international investors seeking ethical and sustainable investment opportunities.
Monetary Policy and Market Conditions
Monetary policy developments will also play a critical role in shaping the sukuk market in 2025. While monetary easing is expected to continue, it will likely proceed at a slower pace than previously anticipated. This measured approach reflects the delicate balance between supporting economic growth and managing inflationary pressures.
The sustained demand for financing in core Islamic finance countries, driven by economic diversification programs, is expected to create windows of opportunity for issuers. Market participants are likely to capitalize on favorable conditions to issue sukuk, particularly as global interest rates stabilize and investor appetite for Sharia-compliant instruments grows.
Geopolitical Considerations
Despite the optimistic outlook, the sukuk market is not immune to geopolitical risks. Factors such as regional tensions, shifts in global trade dynamics, and changes in oil prices could pose challenges to market stability. However, the resilience of the GCC economies, coupled with their strategic investments in non-oil sectors, provides a strong buffer against potential disruptions.
Regulatory and Standardization Efforts
Regulatory developments are another critical aspect shaping the sukuk market. The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) is in the process of adopting Standard 62, which aims to enhance transparency and consistency in sukuk issuance. While the full impact of this standard is expected to materialize in 2026, its implementation reflects the ongoing efforts to strengthen the regulatory framework for Islamic finance.
Standardization is particularly important for attracting international investors, who often face challenges in navigating the diverse interpretations of Sharia compliance across different jurisdictions. By providing a clear and consistent regulatory framework, initiatives like Standard 62 can enhance investor confidence and facilitate the growth of the sukuk market.
Future Outlook
The sukuk market’s growth prospects extend beyond the GCC, with increasing interest from emerging markets in Africa and Asia. Countries like Malaysia and Indonesia continue to lead in terms of innovation and volume, while nations such as Nigeria and Pakistan are exploring sukuk as a viable tool for infrastructure financing and economic development.
On a global scale, the demand for Sharia-compliant instruments is expected to rise as more investors prioritize ethical and sustainable investments. This trend aligns with the broader shift toward ESG-focused financial products, further cementing the role of sukuk in the global capital markets.
Moreover, the digitization of financial services and the adoption of fintech solutions are likely to streamline the sukuk issuance process, reducing costs and increasing accessibility for issuers and investors alike. These technological advancements, coupled with strong market fundamentals, position the sukuk market for sustained growth in the coming years.
Conclusion
As the global financial landscape continues to evolve, the sukuk market stands out as a dynamic and resilient segment of Islamic finance. The GCC’s pivotal role in driving this growth highlights the region’s strategic importance in the broader context of sustainable economic development. With projections indicating a rise to $200 billion in issuances for 2025, the sukuk market is set to play an increasingly significant role in meeting the financing needs of governments and corporations worldwide.
The combination of economic diversification, regulatory advancements, and a growing focus on sustainability creates a favorable environment for the sukuk market to thrive. As countries and investors alike embrace the principles of Islamic finance, the sukuk market is well-positioned to deliver on its promise of ethical, inclusive, and sustainable growth.
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photo source: Google
By: Montel Kamau
Serrari Financial Analyst
16th January, 2024
