Islamic Finance In The UAE: Examining Growth Trends And Sustainability Leadership

The UAE's Islamic finance sector thrives in a supportive economic environment, bolstered by advanced regulations that facilitate Sharia-compliant financial activities. Since the first Islamic bank was established in 1975, the sector has become a key part of the national economy. It includes Islamic banks, Islamic windows in conventional banks, and sukuk (Islamic bonds), which have seen rapid growth both domestically and internationally.

The UAE is dedicated to developing policies and legislation to enhance the Islamic finance sector and the broader Islamic economy. These efforts align with national goals for sustainable economic growth and aim to position the UAE as a global hub for the Islamic economy. The country ranked among the top three Islamic economies worldwide in 2022, according to the State of the Global Islamic Economy Report.

In terms of assets, the UAE ranked fourth globally in Islamic financial markets, as per the 2023 Islamic Finance Development Indicator (IFDI). Data from September 2024 by the Central Bank of the UAE (CBUAE) shows that Islamic banks accounted for about 22% of total banking credit in the UAE, with investments reaching AED152.3 billion by Q3 2024.

Fitch Ratings predicts that UAE's Islamic banks will grow faster than conventional ones over the medium term. A CBUAE study revealed that 79% of these banks have sustainability strategies, with 74% having board-level approval. All Islamic banks reported having established sustainability strategies, while some conventional banks with Islamic windows are still developing theirs.

The sukuk market has also grown significantly in the UAE. The Federal Government introduced dirham-denominated Islamic Treasury Sukuk to encourage broader participation. Green Sukuk issuance since 2019 has further driven sustainable financing growth. The UAE ranks first regionally and second globally in outstanding sustainability Sukuk.

Sukuk Market Expansion

According to Fitch Ratings, sukuk and bond issuances in the UAE increased by 13.1% year-on-year, reaching US$294.4 billion by Q3 2024, with sukuk making up about 20% of total issuances. The debt capital markets are expected to surpass US$300 billion by end-2024 due to strategic initiatives attracting regional and international investors.

Fitch Rankings indicate that the UAE holds a 6.6% share of the global sukuk market, ranking fourth globally across all currencies. The country is one of the largest US dollar debt issuers in emerging markets (excluding China), holding an 8.9% share of total issuances in H1 2024.

Future Prospects and Sustainability Alignment

S&P Global Ratings anticipates continued strong growth for the UAE’s Islamic Finance sector, supported by robust non-oil economic performance. The COP28 event highlighted how Islamic finance principles align with sustainability goals, showcasing its potential to drive sustainable development further.

The UAE remains a leading global destination for sukuk issuances. Nasdaq Dubai reports that Dubai's total value of listed sukuk reached US$98.9 billion as of December.

The synergy between sustainability and Sharia-compliant finance is expected to continue supporting growth in this sector, reinforcing its role within both regional and global markets.

With inputs from WAM