UAE’s new Islamic finance strategy aims to boost the sukuk industry: Fitch

Dubai: The UAE’s recent approval of a national strategy for Islamic finance and the halal industry is expected to significantly boost the country’s position in global sukuk markets, according to Fitch Ratings.

While full implementation details are awaited, the ambitious targets reflect a major top-down push to expand an already robust Islamic finance ecosystem.

Approved during a Cabinet meeting this week, the strategy sets a clear vision: to more than double Islamic banking assets from Dh986 billion to Dh2.56 trillion by 2031. It also aims to raise local sukuk issuances to Dh660 billion and increase international sukuk listings in the UAE to Dh395 billion.

A committee chaired by the Central Bank Governor will oversee the rollout. Islamic banks in the UAE already account for over 17% of total banking system assets and have been growing faster than conventional peers, as per CBUAE data.

Fitch estimates the UAE’s Islamic finance industry to be valued at more than $285 billion as of Q1 2025, with sukuk issuance in the first four months of the year up 28% year-on-year to $6.5 billion. By contrast, conventional bond issuance rose just 6.7% over the same period.

Notably, during April’s global market turbulence — fuelled in part by new U.S. tariffs — UAE issuers preferred sukuk over conventional bonds when accessing dollar markets. Nasdaq Dubai now lists more sukuk than conventional bonds and equities combined, and is expected to remain a top venue for global dollar-denominated sukuk.

Fitch currently rates $28 billion worth of UAE sukuk, with 92.1% in investment grade. About 39.2% fall within the ‘A’ rating category, followed by 34.5% in ‘BBB’ and 18.5% in ‘AA’. No Islamic finance entity or sukuk defaulted in 2024 or Q1 2025.

However, challenges remain. Competition from large, government-linked conventional banks is likely to intensify, and evolving sharia-compliance requirements could complicate issuance processes.

Still, with regulatory support, increasing diversity among issuers, and growing investor appetite, the UAE’s new strategy could cement its role as a global leader in Islamic finance and halal trade over the coming decade.