UAE Islamic Banking – Market Share Growth & Popular Shariah Products

Thinking about banking in the UAE? You might be surprised by how popular UAE Islamic Banking has become! More and more people, not just those seeking Shariah compliance, are choosing these banks. Why? Because of their focus on ethics, clear dealings, and sharing risks. Plus, if you’re interested in sustainable and responsible ways to manage your money, UAE Islamic Banking in 2025 is worth a look. Let’s explore why it’s becoming the go-to for so many.

Related: UAE Islamic Banking Assets Surge by AED86 Billion in 12 Months

UAE Islamic Banking – Growth Driven by Ethics

Industry experts highlight the inherent characteristics of Islamic finance – its emphasis on ethical conduct, transparent dealings, and the principle of shared risk – as key drivers behind its widening acceptance. In a global environment where ethical considerations and responsible investing are gaining prominence, UAE Islamic Banking presents a compelling alternative to conventional financial models. The prohibition of interest (riba), investment in prohibited sectors (such as alcohol, gambling, and tobacco), and the focus on tangible assets resonate with a growing segment of the population that prioritizes value-based financial solutions.

Recent data from Dr. Mohamed Damak, managing director and global head of Islamic finance at S&P Global Ratings, underscores this upward trend. In 2024, UAE Islamic banks demonstrated an impressive growth rate of 11.1 percent, significantly outpacing the 9.2 percent growth observed in the overall UAE banking system. This robust performance has translated into a tangible increase in the market share held by Islamic banks in the UAE, reaching 17.6 percent by the end of 2024, a notable rise from the 17.3 percent recorded at the close of 2023. This steady climb in market share is a clear indicator of the increasing prominence and acceptance of UAE Islamic Banking within the Emirates’ financial ecosystem.

Dr. Damak further elaborated on the financial health and competitive standing of UAE Islamic banks. Based on the disclosed figures from the leading conventional and Islamic banks in the UAE, profitability remains strong and remarkably comparable between the two sectors. Return on assets (RROA for conventional banks stood at a healthy 2.2 percent, while Islamic banks achieved an even slightly higher RoA of 2.4 percent. This strong profitability in the UAE Islamic Banking sector is particularly noteworthy as it is underpinned by a lower cost of risk, even as efficiency and margins remain competitive with their conventional counterparts.

UAE Islamic Banking – A Global Leader with Growing Market Share

The Central Bank of the UAE itself recognized the country’s burgeoning role in the global Islamic finance arena, ranking the UAE as the fourth-largest Islamic finance market worldwide in early 2024. This prestigious ranking highlights the significant strides the UAE has made in developing and promoting its Islamic finance sector. By the end of the first half of 2024, Fitch Ratings reported that Islamic financing had already captured a substantial 29 percent share of the UAE’s total sector financing. This near-third of the total financing market being Shariah-compliant speaks volumes about the deep integration and widespread utilization of UAE Islamic Banking products and services.

Ibrahim Al Mheiri, head of Islamic banking at Mashreq, a prominent financial institution in the UAE, echoed this sentiment of sustained growth in the demand for Islamic finance products within the Emirates. He attributed this increasing preference to a growing customer base actively seeking Shariah-compliant solutions and the UAE’s strategic commitment to establishing itself as a preeminent global hub for Islamic finance. This national vision, coupled with increasing consumer awareness and demand, creates a fertile ground for the continued expansion of UAE Islamic Banking.

UAE Islamic Banking: Promising Future with Regulatory Support

Al Mheiri further projected that this positive momentum is expected to persist, with Islamic banks anticipated to outpace their conventional peers in terms of growth over the medium term. Several key factors are reinforcing this optimistic outlook for UAE Islamic Banking. Supportive regulatory frameworks enacted by the UAE government and the Central Bank are playing a vital role in fostering a conducive environment for the growth of the sector. Enhanced digital offerings by Islamic banks, mirroring and often exceeding those of conventional banks, are attracting a tech-savvy customer base. Moreover, the increasing global appeal of ethical banking and responsible investing is naturally drawing more individuals and institutions towards the principles and practices of Islamic finance in the UAE.

Adding to this perspective, Badis Shubailat, assistant vice president and analyst at Moody’s Ratings, highlighted the superior return on asset performance exhibited by UAE Islamic banks in the past year when compared to their conventional counterparts. Among the entities rated by Moody’s, the net income to tangible assets stood at a robust 2.2 percent for Islamic banks in 2024, significantly higher than the 1.8 percent recorded by their conventional peers. This consistent outperformance in profitability further strengthens the investment case for UAE Islamic Banking and underscores its financial viability and attractiveness.

Shubailat also pointed to the favorable economic conditions within the UAE as a contributing factor to the strong performance of the banking sector as a whole. High interest rates prevailing for a significant portion of the previous year, coupled with strong operating conditions underpinned by positive business sentiment, created a supportive environment for both conventional and Islamic banks. Furthermore, ongoing structural reforms implemented by the UAE government continue to safeguard the country’s competitive edge in the global financial landscape, benefiting the UAE Islamic Banking sector as well.

The Growing Demand for Shariah-Friendly Products in the UAE

While the overall demand for all types of Islamic financial products is on the rise within the UAE, Ibrahim Al Mheiri of Mashreq specifically pointed to a particularly strong demand for products that closely align with environmental, social, and governance (ESG) principles. This growing appetite for ethical and sustainable financial solutions is a global trend that is significantly impacting the UAE Islamic Banking sector.

Al Mheiri identified Green Sukuk as a key growth area within UAE Islamic Banking. These Shariah-compliant bonds are specifically used to raise capital for environmentally friendly projects, such as the development of renewable energy infrastructure and sustainable urban development initiatives within the UAE. The issuance and increasing popularity of Green Sukuk in the UAE demonstrate the commitment of Islamic banks to supporting sustainable development and catering to the growing demand for green finance options.

Sustainable investment options are another area experiencing significant growth within UAE Islamic Banking. Investors are increasingly seeking Shariah-compliant investment vehicles that adhere to ethical guidelines while also considering the environmental and social impact of their investments. Islamic banks in the UAE are responding to this demand by developing and offering a wider range of sustainable investment funds and portfolios that align with both Shariah principles and ESG criteria.

Transparent Structures in UAE Islamic Banking

Ray Vermam, a luxury broker at Eden Realty UAE, shed light on the competitive returns offered by Islamic banks in the UAE. He noted that Islamic banks often provide returns that are comparable to, or even slightly higher than, those offered by conventional banks, particularly for fixed-term deposits. This competitive pricing is a significant factor in attracting customers to the UAE Islamic Banking sector.

However, Vermam also highlighted a key difference like returns between Islamic and conventional banks. While conventional banks typically guarantee a fixed interest rate on deposits, returns in Islamic banking are generally based on profit-sharing from Shariah-compliant investments, such as trade financing and real estate development. This means that returns in Islamic banking are not guaranteed and depend on the performance of the underlying investments. While this introduces an element of variable return, it also aligns with the Islamic principle of shared risk and reward.

Vermam suggested that risk-averse customers who prioritize the stability of guaranteed returns might still lean toward conventional banks. However, ethical investors who are deeply committed to aligning their finances with religious principles often favor Islamic banks despite the variable nature of returns. The ethical framework and Shariah compliance are paramount for this segment of the market. Regarding mortgage rates in the UAE market in 2024, Vermam observed that the difference between Islamic and conventional mortgages is often minimal. In some cases, Islamic banks in the UAE even provide slightly cheaper credit for fixed-term financing options.

He further pointed out that while the interest rates on conventional mortgages and the profit rates on Islamic mortgages might be comparable, Islamic mortgages often feature more transparent fee structures. Notably, they typically do not charge prepayment penalties, which can be a significant advantage for borrowers who anticipate paying off their mortgage early. In contrast, conventional mortgages may include additional costs such as prepayment penalties and variable interest rates that could potentially increase over time, adding uncertainty to the overall cost of borrowing.

In essence, UAE Islamic Banking distinguishes itself by providing competitive and tailored financial solutions that strictly follow Shariah law, as highlighted by Ibrahim Al Mheiri of Mashreq. This commitment to ethical practices and transparent dealings, combined with favorable pricing, is a primary reason for the sector’s ongoing expansion and increasing popularity among a wide range of customers in the UAE’s vibrant financial arena. For those exploring banking options in the Emirates, UAE Islamic Banking presents a compelling and rapidly growing alternative rooted in ethical finance and competitive offerings.