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GCC countries fueling global Islamic finance industry growth

GCC countries contributed 92% of the growth in the Islamic banking assets, Saudi and Kuwait leading the charts

GCC countries fueling global Islamic finance industry growth
[Source photo: Pankaj Kirdatt/Fast Company Middle East]

Despite the economic slowdown, Islamic finance exerts considerable influence in banking, with sukuk issuance gaining momentum. A new report by S&P Global Ratings expects a 10% growth in the global Islamic finance industry in 2023-2024. The report said that the industry’s assets expanded by 9.4% in 2022 compared to 2021 with the help of banking assets and the sukuk industry. 

In 2022, the GCC countries contributed 92% of the growth in Islamic banking assets, mostly led by Saudi Arabia and Kuwait. 

Kuwait Finance House’s acquisition of Ahli United Bank became a major factor for its growth in the country, while for Saudi Arabia, the implementation of Vision 2030 and increase in mortgage lending supported the industry’s growth. 

However, local currency depreciation in other parts of the world slowed down the Islamic finance industry’s growth in many regions. 

“Structural weaknesses still curb the industry’s broader geographical and market appeal. We believe that progress toward greater standardization — partly supported by the digitalization of sukuk issuance, for example — could enhance the industry’s structural growth potential,” said the report. 

“At the same time, the increasing focus on sustainability-related themes by core Islamic finance players will create new opportunities for the industry. We expect the contribution of sustainability-linked sukuk to continue increasing in the next 12-24 months, albeit from a low base.”

Even though there was a dip in the issuance volumes of sukuk, it continued to accelerate the industry’s growth. The report anticipated the sukuk volumes to go down again this year, but the new issuances will be larger in number than the maturing bonds. 

Corporate companies will likely continue to contribute to issuance volumes of sukuk, according to the S&P report, especially in countries where governments have undertaken diversification and transformation plans, like Saudi Arabia. 

Issuers in countries like Egypt and Turkey are likely to seek financing through sukuk to mobilize their resources for their financing needs. Egypt issued its first Sukuk earlier this year for $1.5 billion after establishing a sukuk programme of about $5 billion. 

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