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The growing appeal of Islamic finance in the UAE

In 2022, Islamic banking constituted 23% of the overall banking assets in the UAE

The growing appeal of Islamic finance in the UAE
[Source photo: Central bank of UAE (CBUAE) / Anvita Gupta ]

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The UAE’s Islamic finance sector blends innovation and tradition. With diverse Islamic banking institutions, growing sukuk markets, and strong takaful frameworks, the nation has firmly established itself as a key player in Sharia-compliant finance.

The UAE’s Islamic finance sector is roaring ahead, accounting for nearly a quarter of all banking assets, the Central Bank reported.

The UAE Islamic Finance Report 2023 report shows that Islamic banking assets reached a staggering $231 billion, claiming 23% of all banking assets.

Dedicated Islamic banks controlled $171.8 billion, while “Islamic windows” within conventional banks held $58.3 billion, showcasing a remarkable growth of 49% and 8% since 2018. Islamic windows currently comprise 25% of all Islamic banking assets in the UAE.

This surge coincides with the nation’s Year of Sustainability and the recent hosting of COP28, underscoring the crucial role these Sharia-compliant financial instruments play in achieving national environmental and economic objectives.

“Islamic banks play a crucial role in the development and provision of sustainable finance and in meeting the sustainability objectives of the wider financial sector, by the UAE’s regulatory, supervisory, and risk-management directives,” said Central Bank Governor Khaled Balama.

The report also highlighted substantial growth in takaful and sukuk issuances, both integral aspects of Islamic finance, throughout the previous year. Among the 62 insurance companies in the UAE in 2022, 10 operated as takaful providers.

According to the report, the UAE witnessed a more active sukuk issuance in the initial half of 2023 compared to the combined figures of 2021 and 2022. The report indicated that sukuk issuances amounted to $7.8 billion in the first half of 2023, surpassing the $6.7 billion recorded for the entire year of 2022.

“The UAE’s sukuk market is also expanding, and the introduction of local-currency Treasury sukuk by the federal government has the potential to encourage the issuance from other players in the market,” the Central Bank said.

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