In 2023 and 2024, Saudi Arabia and Kuwait will Drive 10% Growth of the $3 Trillion Islamic Finance Industry

According to a recent report by S&P Global Ratings, the Islamic finance industry, valued at $3 trillion, is projected to experience a growth rate of approximately 10% annually in 2023-2024, mirroring the growth seen in 2022.

The primary drivers of this growth are the countries within the Gulf Cooperation Council (GCC), particularly Saudi Arabia and Kuwait, as reported by Zawya.

However, growth has been somewhat restrained due to depreciation of local currencies.

Dr. Mohamed Damak, Senior Director & Global Head of Islamic Finance, mentioned in the "Islamic Finance Outlook 2024" edition that while they anticipate a reduction in sukuk issuance volume in 2023, they still expect new issuances to surpass maturing sukuk, making a positive contribution to the industry's growth in 2023.

Furthermore, Dr. Damak noted the likelihood of continued expansion in the Islamic funds and takaful sectors.

A notable challenge in the Islamic finance sector is the intricate nature of structures and transactions, leading to a significant concentration of industry assets.

Over 90% of the industry's asset growth in the previous year was driven by Saudi Arabia and Kuwait.

A significant portion of the sukuk market also comes from Malaysia and GCC countries.

S&P identified two key opportunities for unlocking future growth: simplifying products and processes to appeal to new issuers and the convergence of Islamic and sustainable finance.

Many Islamic finance countries are pursuing strategies to transition to greener economies, signaling growth potential for green sukuk issuance and heightened activity in this domain to attract global investor interest.

On a different note, issuance of foreign currency-denominated sukuk saw a rise of about 9% in the first half of 2023, driven by Saudi Arabia and a few new issuers.

Dr. Damak expressed an expectation of further issuance throughout the year, with some Gulf issuers prepared and awaiting opportune moments for launch.

S&P's forecast for global issuance in 2023 ranges between $160 billion to $170 billion, surpassing their initial estimate of $150 billion.

However, this figure is anticipated to fall short of the 2022 total due to a decline in local currency sukuk issuance.