UAE Edition 
Egypt Edition 
Saudi Edition 
MENA <> India Corridor 
Logistics (MENA) 
Climate (MENA) 
Share
Read Full Issue 
The UAE’s Islamic finance sector grew 11% y-o-y to AED 16.5 tn in 2022, according to the Central Bank of the UAE’s recently-issued Islamic Finance Report 2023 (pdf). Growth was driven by higher demand for both Islamic banking and sukuk, the report says.
Islamic banks are gaining market share — and so are islamic windows at conventional lenders. In terms of value, standalone Islamic banks dominated the market for Islamic finance, as opposed to Islamic windows, which are departments within conventional banks that provide shariah-compliant services.
The breakdown: Islamic banking assets amounted to AED 845 bn during the year, constituting 23% of the banking sector’s total assets. Islamic banks made up nearly 75% of the market, with Islamic windows at conventional banks making up the rest. The number of Islamic windows — which stood at 16 in 2022 — has grown 49% since 2018, while Islamic banks rose 8% to six, according to the report.
The most popular Islamic finance products: Ijara, a lease contract used for fixed assets like homes and equipment, and murabaha, which is a sales-contract-like structure that allows clients to purchase goods at a pre-agreed margin.
Corporates ❤️ Islamic finance: Some 43% of Islamic financing providers’ portfolio is made up of financing to the corporate sector, while 35% went to individuals in 2022, according to the report.
Islamic banking deposits saw their highest growth since 2019, according to the report. Also growing: profitsharing investment accounts such as mudharaba (where a bank and the client agree to share net income for a specific period) and wakala (where the bank is appointed as an agent to carry out investments on the client’s behalf).
Three institutions dominated the AED 127 bn market for sukuk issuances in the past five years: The Government of Sharjah, Dubai Islamic Bank, and Abu Dhabi Islamic Bank. Together, the three accounted for 74% of total sukuk issuances in the past five years.
2023 is looking like a stronger year for sukuk: The Emirati market saw some AED 28.7 bn sukuk issuances (c. USD 7.8 bn) over the first six months of 2023, up from the AED 24.6 bn (c. USD 6.7 bn) posted over the entire year of 2022.
Watch this space: 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 writes. The AED-denominated treasury sukuk issuance in May was 7.6x oversubscribed.
Background: The government introduced a federal law governing commercial transactions, which came into effect on 2 January 2023. The law is the first in the world to address the technological and industrial developments that have affected commercial transactions, including the growing Islamic finance industry. The law sets a governing framework for Islamic finance transactions and sukuk structures such as murabaha, istisna, ijarah, and salam.
The sector is poised to grow to USD 6.7 tn: Having expanded by 163% over the past decade, the industry is expected to maintain its momentum and reach USD 6.7 tn in assets by 2027, according to the Islamic Finance Development Indicator (pdf) report. The Islamic finance industry is also expected to turn over USD 3 tn between 2023-2024, growing at a rate of 10%, according to S&P Global. The industry’s growth in the UAE is expected to be boosted by high oil prices and solid economic conditions, ratings agency Fitch said in May.
