As the global Islamic finance industry continues to evolve, it’s marked by robust growth and transformative trends shaping its future. Islamic Finance 2024-2025: Resilient Growth Anticipated Despite Missed Opportunities highlights this progression. S&P Global Ratings forecasts a high-single-digit expansion for the sector in 2024-2025, continuing the momentum after an 8% increase in 2023 (excluding Iran). This projection aligns with the industry’s steady trajectory despite variable growth rates across different regions.
In 2023, the Islamic banking sectors in Saudi Arabia and the United Arab Emirates (UAE) demonstrated solid performance, although growth rates slightly varied. Saudi Arabia, in particular, played a pivotal role, contributing significantly to the industry’s growth, driven by Vision 2030 initiatives and increased corporate and mortgage lending. Meanwhile, the UAE benefited from a thriving non-oil economy. However, Kuwait experienced a slowdown following a spike in 2022 due to a significant acquisition.
The sukuk market, integral to Islamic finance, also experienced notable activity. While overall issuance volumes saw a slight dip due to tighter liquidity conditions in certain regions, the market remains optimistic. In the first quarter of 2024, sukuk issuance surged to $46.8 billion, up from $38.2 billion in the same period in 2023. This increase is supported by a robust start and growing interest in foreign currency-denominated sukuk, reflecting better visibility on interest rate trajectories.
Digital transformation and sustainability are emerging as critical themes within the industry. Despite slow progress, these areas present significant opportunities, especially in regions heavily invested in oil. However, achieving substantial growth in digital sukuk and tokenization initiatives remains challenging, highlighting the need for supportive global standards.
Islamic finance is also gaining traction in non-traditional markets across Asia-Pacific, Central Asia, Africa, and parts of Europe, though it remains nascent in these regions. The industry faces ongoing challenges, such as the concentration of assets in a few countries and the complexity of transactions, which are further complicated by evolving standards like AAOIFI’s Standard 62 on Sukuk.
The sukuk market’s growth is cautiously optimistic for 2024, with estimates suggesting issuances could reach between $160 billion and $170 billion. Key markets like Saudi Arabia are expected to continue leveraging sukuk for significant economic projects, including in structured finance.
The takaful (Islamic insurance) and Islamic funds sectors are also poised for growth, with takaful expected to expand by approximately 10% annually. This growth will be supported by continuous business development and positive investment returns.
The theme “Islamic Finance 2024-2025: Resilient Growth Anticipated Despite Missed Opportunities” underscores that, while the Islamic finance industry faces its share of challenges, its trajectory remains promising. Driven by strategic initiatives and an increasing focus on sustainability and digital innovations, the industry’s adaptability and alignment with global economic trends continue to attract diverse investors and expand its geographical footprint, reinforcing its role in the broader financial landscape.
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