UAE Leads as Global Hub for Islamic Finance says FTSE Russell CEO

The UAE Global Hub for Islamic Finance, has become one of the most prominent financial centers in the global Islamic economy. This leadership is driven by a commitment to integrate Sharia-compliant finance into mainstream banking, backed by robust support from the UAE government and financial institutions. Fiona Bassett, CEO of FTSE Russell, recently underscored this trajectory, highlighting the UAE’s role in the Middle East as a dynamic hub for Islamic finance.

In a recent statement, Bassett introduced the FTSE ADX 15 Islamic Index (FADXI15) at the Abu Dhabi Securities Exchange (ADX), a landmark development designed to give investors access to the top 15 Sharia-compliant companies within Abu Dhabi. She emphasized that this initiative is not just about index creation but a strategic move to support the UAE’s broader objectives in establishing itself as a global finance center.

UAE’s Islamic Finance Market

UAE Global Hub for Islamic Finance has flourished, driven by a strong framework designed to attract both local and global investors. Data from the Islamic Finance Development Report 2023 illustrates that the global Islamic finance industry has grown significantly over the past decade, with total assets reaching $4.5 trillion in 2022. The report projects that by 2027, the industry could expand to $6.7 trillion, fueled by increased demand for Sharia-compliant financial products. Within this growth, the UAE has captured substantial market share by implementing forward-looking financial regulations and incentivizing investment in the Islamic finance sector.

Sharia Compliance as a Foundation

The foundation of Islamic finance lies in Sharia compliance, which dictates that all transactions avoid interest (riba) and promote risk-sharing. In the UAE, the regulatory structure is rigorously designed to ensure Sharia compliance across all Islamic banking institutions. The Higher Sharia Authority in the UAE, established under the Central Bank, plays a key role in overseeing and guiding financial institutions to maintain ethical and compliant practices.

The UAE’s commitment to Sharia principles aligns with global trends, as Islamic finance becomes increasingly recognized as a viable alternative to conventional banking systems. Fiona Bassett noted that this alignment with Islamic finance principles has attracted global investors looking to diversify their portfolios while adhering to ethical investment standards. The launch of the FTSE ADX 15 Islamic Index is expected to attract an influx of investment into Abu Dhabi’s markets, further boosting liquidity and growth.

Strategic Partnership with Abu Dhabi

FTSE Russell’s collaboration with the Abu Dhabi Securities Exchange (ADX) symbolizes a broader strategic vision. The partnership aims to foster innovative financial products that meet the needs of both institutional and retail investors. By aligning with the UAE’s economic diversification efforts, ADX and FTSE Russell are positioned to enhance Abu Dhabi’s standing as a global Islamic finance hub.

This partnership also highlights ADX’s rapid growth in recent years, becoming one of the fastest-growing financial exchanges in the region. ADX’s initiatives include increasing transparency, promoting Sharia-compliant listings, and offering specialized products that cater to the principles of Islamic finance. As Bassett noted, the introduction of indices like FADXI15 provides a critical toolkit for investors looking to navigate the growing landscape of Islamic finance.

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Initiatives in Islamic Finance

A defining element of the UAE’s Islamic finance landscape is its focus on sustainable and responsible finance. In line with the UAE’s Year of Sustainability, the UAE Central Bank introduced 10 key sustainability guidelines for financial institutions, encouraging them to align their investment practices with Islamic values of social responsibility and ethical investing. Around 79% of UAE Islamic banks now have sustainability strategies integrated at the board level, a unique feature that sets UAE institutions apart from many other global financial centers.

The UAE has implemented sustainability-focused measures that not only appeal to ethical investors but also resonate with a growing demographic of eco-conscious consumers. This aligns with global trends in sustainable finance, where demand for green and socially responsible investments continues to rise. By prioritizing sustainable practices, the UAE has successfully attracted a diverse range of investors, further strengthening its position as a leading hub for Islamic finance.

Global Recognition

One of the factors distinguishing the UAE’s Islamic finance industry is its recognition on the global stage. The country’s integration into global markets has been bolstered by initiatives like the inclusion of UAE-based companies in FTSE Russell’s international indices. As Bassett explained, this inclusion is facilitated by the UAE’s strong market liquidity, regulatory support, and growing market capitalization. The increased visibility of UAE companies on international indices has attracted foreign investors seeking exposure to the Islamic finance sector, boosting liquidity and stimulating economic growth.

International recognition is also evident in the UAE’s expanding network of partnerships. The UAE Central Bank’s strategic partnerships with global entities in the Islamic finance space highlight the country’s commitment to advancing the sector. These partnerships are expected to continue fostering innovation and development, keeping the UAE at the forefront of Islamic finance.

Growth in the Sukuk Market

The UAE’s sukuk (Islamic bonds) market has been instrumental in driving the country’s financial expansion. The sukuk market globally reached around $160 billion in issuance in early 2024, driven by growing demand for Sharia-compliant bonds from both institutional investors and retail consumers. In the UAE, sukuk issuances provide an essential avenue for financing large-scale infrastructure projects, aligning with the country’s vision of economic diversification.

Saudi Arabia and the UAE are currently the primary players in the Gulf Cooperation Council (GCC) for sukuk issuance. However, the UAE’s distinct advantage lies in its robust regulatory framework and transparent processes, which attract international investors. With the Central Bank and Higher Sharia Authority actively supporting the sukuk market, the UAE is set to remain a leader in this space, further solidifying its role as a hub for Islamic finance.

Digital Transformation

Digital transformation is a major focus within the UAE’s Islamic finance sector, aimed at modernizing financial processes and enhancing consumer access to Sharia-compliant services. The UAE’s push towards digital transformation includes the adoption of AI-powered platforms for customer service and the integration of blockchain technology to increase transparency in financial transactions.

The digital shift has not only improved efficiency but also attracted a younger, tech-savvy demographic to Islamic banking. By embracing digital tools, Islamic financial institutions in the UAE are better positioned to compete globally and offer customers a streamlined, digital-first experience that aligns with modern consumer preferences.

UAE Global Hub for Islamic Finance

The UAE’s rise as a global hub for Islamic finance is not only reshaping the Middle Eastern economy but also influencing financial markets worldwide. By prioritizing sustainable, Sharia-compliant, and innovative practices, the UAE has positioned itself as a role model for other Islamic finance centers. As Islamic finance grows worldwide, the UAE’s regulatory and investment frameworks serve as a benchmark for emerging markets looking to develop their own Sharia-compliant sectors.

With projections indicating that Islamic finance assets could reach $6.7 trillion by 2027, the UAE’s role in the industry is likely to expand further. As the global demand for ethical and sustainable financial products increases, the UAE’s leadership in Islamic finance will continue to attract investors, strengthen its financial markets, and drive economic growth.

A Strategic Path Forward

As the UAE advances its position in Islamic finance, it sets a blueprint for other nations aiming to develop their own Islamic finance sectors. By emphasizing regulatory support, sustainability, and digital transformation, the UAE has crafted a distinctive model for Islamic finance that resonates with a global audience. Fiona Bassett’s remarks at the FTSE ADX 15 Islamic Index launch underscore the UAE’s trajectory, with the ADX-FTSE Russell partnership serving as a pivotal step in connecting the UAE with international markets.

The UAE’s influence is evident, from its thriving sukuk market to its leadership in Sharia-compliant and sustainable banking practices. As the Islamic finance industry continues to grow, the UAE is well-positioned to remain a central player, providing a compelling alternative to traditional financial systems worldwide.