Moody’s Forecasts Global Sukuk Issuance to Exceed $200 Billion in 2024

KUALA LUMPUR – Global sukuk issuance is on track to surpass the US$200 billion mark in 2023, highlighting the continued growth and resilience of the Islamic finance market. Moody’s latest report predicts that sukuk issuance volumes this year will range between US$200 billion and US$210 billion, a notable increase compared to last year’s total, which just fell short of the US$200 billion threshold. This upward trajectory is primarily driven by robust sovereign issuance across the Gulf Cooperation Council (GCC) countries and Southeast Asia, with leading contributions from Malaysia and Saudi Arabia.

Key Drivers Behind Sukuk Issuance Growth

Sukuk issuance in 2023 has been propelled by several key factors, with the growing economic diversification efforts in the GCC playing a central role. Many of these countries, including Saudi Arabia, have initiated strategic national development plans aimed at reducing their reliance on oil revenues. As a result, sovereign issuers have turned to sukuk as a critical financial tool to raise funds for these diversification efforts. This trend is particularly evident in Saudi Arabia and the United Arab Emirates (UAE), which continue to leverage sukuk issuance to fund large-scale infrastructure and economic projects aimed at fostering long-term growth.

In addition to sovereign issuance, non-financial companies and financial institutions have been significant contributors to the sukuk market’s expansion this year. According to Moody’s, a mix of factors has driven this activity. For many issuers, the opportunity to re-enter the market after delays, diversify funding sources, or broaden their investor bases has led to an uptick in Sukuk issuance. Another major factor behind the rise in sukuk issuance is the growing emphasis on sustainable sukuk, which aligns with global trends in green and socially responsible finance.

This focus on sustainable finance is increasingly significant, as Islamic finance aligns naturally with ethical investment principles. The rise in green sukuk—sukuk linked to environmentally friendly projects—and social sukuk has allowed the Islamic finance market to tap into a broader, more global investor base. Investors, particularly those seeking ethical investments, have shown growing interest in these instruments, fueling further growth in the sukuk market.

GCC and Southeast Asia Lead the Way

When examining regional dynamics, the GCC remains at the forefront of the sukuk market, with Saudi Arabia leading the charge. Saudi Arabia’s Vision 2030 plan, which focuses on diversifying the economy away from oil, has been a key driver of Sukuk issuance. The Saudi government has utilized sukuk as a strategic financing tool to fund infrastructure and energy projects that align with its long-term goals. In the first half of 2023, Saudi Arabia’s sovereign sukuk issuances alone accounted for a significant portion of global sukuk issuance, signaling the country’s ongoing commitment to Islamic finance.

Similarly, other GCC nations, including the UAE, Qatar, and Kuwait, have followed suit, leveraging sukuk issuance to fund various developmental projects. The UAE, in particular, has emerged as a leader in sustainable finance, issuing several green sukuk to fund projects related to clean energy and environmental sustainability. With growing international interest in sustainability and ethical finance, the UAE has positioned itself as a hub for green sukuk issuance, attracting investors from around the globe.

On the other hand, Southeast Asia has also played a crucial role in the global sukuk market, with Malaysia consistently maintaining its position as one of the top sukuk issuers worldwide. Malaysia’s robust Islamic finance infrastructure, coupled with its government’s commitment to promoting Islamic financial products, has made the country a global leader in sukuk issuance. The Malaysian government and corporations have regularly tapped into the sukuk market to raise capital for various purposes, from infrastructure development to sustainable projects.

Indonesia is another key player in Southeast Asia’s sukuk market. The country has made significant strides in recent years, not only in issuing sovereign sukuk but also in exploring ESG-linked sukuk issuance. Indonesia’s government has used sukuk to fund numerous public projects, ranging from infrastructure development to renewable energy initiatives, helping the country attract foreign investment and bolster its economic stability.

A Slower Second Half of 2023?

Despite a strong performance in the first half of 2023, Moody’s expects the pace of Sukuk issuance to slow during the second half of the year. The firm forecasts that the total sukuk issuance for the second half of 2023 will range between US$80 billion and US$90 billion, a slight dip compared to earlier in the year. Several factors may contribute to this slowdown, including market conditions, geopolitical uncertainties, and seasonal issuance patterns.

However, while the issuance pace may moderate in the latter half of the year, the overall sukuk market remains strong. The total issuance volume for the year is still projected to exceed the 2022 levels, reflecting the continued robustness of Islamic finance and the growing demand for sukuk instruments.

ESG Sukuk and Beyond

Looking ahead, Moody’s sees substantial growth potential for the sukuk market, particularly in the ESG (Environmental, Social, and Governance) sukuk sector. The demand for ESG-compliant financial instruments has grown significantly over the past few years, and sukuk issuers have been quick to respond. In 2023, the ESG sukuk market reached new heights, with a record issuance of US$10.6 billion. This growth has been driven by increasing investor demand for green and sustainable financial products, particularly in markets like the UAE, Indonesia, and Saudi Arabia.

In the first half of 2023 alone, ESG sukuk issuance volumes reached US$6 billion, underscoring the strong interest from both issuers and investors. The surge in ESG sukuk reflects broader global trends, as investors increasingly prioritize sustainable and socially responsible investments. Countries looking to diversify their funding sources have also turned to ESG sukuk as a means of attracting a more global investor base.

The expansion of ESG sukuk is part of a broader trend of increasing sophistication and diversity within the sukuk market. As Islamic financial instruments continue to evolve, sukuk issuers are exploring new ways to align their products with investor demand. Green and social Sukuk is expected to play an even larger role in the market’s future growth, providing issuers with opportunities to tap into a growing pool of investors seeking ethical and sustainable investments.

The Future of Sukuk Issuance

The sukuk market’s future looks bright, with continued growth expected in the coming years. As more investors become aware of the benefits of sukuk—particularly their alignment with ethical and sustainable investment principles—the investor base for these instruments is likely to expand beyond traditional Islamic markets. The rising demand for Islamic financial products, coupled with the growing appeal of ESG sukuk, positions sukuk as a key player in the global financial landscape.

Moreover, the increasing diversity and sophistication of sukuk instruments offer issuers new opportunities to meet the needs of a broader range of investors. As the market for green and sustainable finance grows, sukuk will likely play a central role in providing ethical, stable, and attractive investment options.

Sukuk issuance in 2023 is set to be a milestone year for the Islamic finance market, with total volumes exceeding US$200 billion. The combination of strong sovereign issuance in the GCC and Southeast Asia, the rise of ESG sukuk, and growing investor interest in sustainable finance has created a perfect storm for continued market expansion. Looking ahead, the sukuk market is poised for further growth, offering a diverse range of ethical and sustainable financial products that will attract investors from around the world.