UAE Climbs to Fourth Spot in Global Islamic Finance, Assets Hit AED 16.5 Trillion

The Central Bank of the UAE (CBUAE) has recently disclosed significant insights into the Islamic finance sector, highlighting its substantial growth and the pivotal role it plays in the global financial landscape. According to the Islamic Finance Development Indicator report 2023 (IFDI 2023), the UAE is now ranked fourth globally among the largest Islamic financial markets, with assets reaching an impressive AED16.5 trillion (US$4.5 trillion). This marks an 11 percent growth in 2022 alone, showcasing a robust expansion of 69 percent over the last five years and a staggering 163 percent over the past decade.

Since the inception of its first Islamic bank in 1975, the UAE has seen a diverse development across various sectors such as Islamic banking, takaful insurance, and sukuk. The CBUAE attributes this growth to a strong regulatory environment that effectively merges regulatory and legal requirements with Islamic law provisions. Currently, assets of Islamic banks and windows within conventional banks constitute 23 percent of the total banking assets in the UAE, following a 16 percent growth over five years.

The sukuk market in the UAE is also experiencing significant expansion. The federal government's recent issuance of Islamic treasury sukuk in UAE dirham is expected to encourage further sukuk issuances by other entities. Moreover, there has been a focused effort on harmonizing and calibrating Shari'ah requirements to foster the stability and growth of Islamic finance, alongside promoting innovative products and services.

One of the key legislative supports for this sector's prosperity is Federal Law Decree No. (50) of 2022 on the issuance of the Commercial Transactions Law. This law aims to increase legal certainty in Islamic finance transactions and activities, thereby strengthening trust among all parties involved.

The report also highlights the significant role of Islamic finance in sustainability, noting its alignment with Sustainable Development Goals due to the compatibility between Islamic law requirements and sustainability aspirations. The rapid growth rate of ESG-related sukuk issuances, reaching AED 120.3 billion by the first half of 2023, underscores the dynamic development of sustainable Islamic finance.

Sustainable finance has seen rapid growth in the UAE since its first green sukuk issuance in 2019. ESG sukuk issuances due in the UAE accounted for 15 percent of global ESG sukuk. The CBUAE has been proactive in integrating sustainability standards into reserve management and supporting digital transformation in the financial system among other initiatives aimed at developing sustainable Islamic finance.

The Higher Shari'ah Authority at CBUAE has issued guiding principles on sustainable Islamic finance for 2023, emphasizing Shari'ah principles for incorporating sustainability into Islamic finance. It introduced ten requirements and recommendations for sustainable Islamic finance, encouraging a balanced approach to environmental and social aspects.

A survey covering local and foreign full-fledged Islamic banks and Islamic banking windows of conventional banks revealed that 79 percent have a sustainability strategy approved at the board level. This indicates a strong commitment towards sustainability within the sector, although some conventional banks with Islamic windows are still in the process of formalizing their strategies.

This comprehensive report by CBUAE not only showcases the significant strides made by the UAE in Islamic finance but also underscores its commitment to sustainability and innovation within this sector. As Islamic finance continues to grow both locally and globally, it remains an integral part of the financial landscape in the UAE.

With inputs from WAM