UAE's Islamic Finance Sector Achieves 8% Growth In 2023, Eyes Future Expansion

In a recent analysis by S&P Global Ratings, the global Islamic finance sector is showcased to be on a trajectory of robust growth, with particular emphasis on its accelerated expansion in the UAE last year, buoyed by the non-oil economy's strong performance. The report, titled "Islamic Finance 2024-2025: Resilient Growth Anticipated Despite Missed Opportunities", forecasts a continuation of high single-digit growth for the sector in the upcoming years, following an 8 percent growth rate in 2023.

The sector's growth is further expected to be fueled by sukuk issuances, projected to be in the range of US$160-170 billion in 2024. This boost is anticipated to contribute significantly to the sector's asset growth in 2024, with additional increases foreseen in the Islamic investment funds and Takaful sectors. As of 31st March 2024, the sukuk market has already demonstrated a strong start with total issuances reaching $46.8 billion, an increase from $38.2 billion in the same period of the previous year.

Islamic banking assets have been identified as a key driver of growth within the Islamic finance sector in 2023, accounting for 56 percent of the sector's expansion, albeit a decrease from 72 percent in 2022. The report highlights that financial institutions across Gulf countries were responsible for 86 percent of asset growth in 2023, with Saudi Arabia leading at 56.7 percent of this growth. The ongoing initiatives under Saudi Vision 2030 and an uptick in corporate lending and mortgage financing are expected to sustain support for the Islamic finance sector over the next 12-24 months.

Furthermore, the UAE's significant contribution to the sector's growth in 2023 is attributed to the robust performance of its non-oil sector. The report also notes some growth in other countries such as Turkiye and Indonesia, though it mentions a slight decline in Malaysia and Türkiye due to currency depreciation issues.

Looking ahead, the Islamic banking sector in the Asia-Pacific region is poised for significant expansion. This optimism is based on high single-digit demand for Islamic products and services coupled with untapped market potential in countries like Indonesia, Bangladesh, and Pakistan over the next two years.

This detailed report from S&P Global Ratings not only underscores the dynamic nature of the global Islamic finance sector but also highlights its critical role within the broader financial landscape. With continued support through strategic initiatives and an increasing demand for Islamic financial products and services, the sector is well-positioned for sustained growth into 2024 and beyond.

With inputs from WAM