RIYADH: The global sukuk market is poised to maintain its strength in 2025, with foreign currency-denominated issuances expected to reach between $70 billion and $80 billion, according to a new report by S&P Global.
In the first half of 2025, foreign currency sukuk issuances rose 8.94 percent year on year to $41.4 billion, driven by increased activity in the UAE, Bahrain, and Kuwait. Saudi Arabia remained a key player, contributing 38.9 percent of the total market volume, as local banks continued to support Vision 2030-related initiatives.
Earlier this year, Fitch Ratings shared a similar outlook, forecasting that Saudi Arabia would remain a major driver of US dollar-denominated sukuk and debt issuance in 2025 and 2026. Banks in the Kingdom alone are expected to issue over $30 billion as institutions seek to diversify their funding sources.
The increase in global sukuk issuance came despite external headwinds, including new US tariffs and delayed interest rate cuts. S&P noted that issuers in core Islamic finance markets took advantage of brief periods of market stability to secure funding.
“We expect performance in the second half of the year to depend on the evolving geopolitical situation in the Middle East. However, since we don’t expect a full-scale regional war, we think the resilient foreign currency issuance trends observed in the first half will continue,” S&P Global said in the report.
“It will also be supported by the Fed’s expected reduction in interest rates. Therefore, we maintained our forecasts for foreign currency-denominated issuances to reach about $70 billion to $80 billion for the full year in 2025,” it added.
Foreign currency sukuk issuance had already climbed to $72.7 billion in 2024, a 29 percent increase from the previous year, supported by significant financing needs in Islamic finance hubs and fiscal pressures due to lower oil prices.
According to S&P, geopolitical tensions are not expected to significantly disrupt issuance this year. Instead, market activity will hinge on the direction of monetary policy, domestic liquidity conditions, and investment trends in key Islamic finance countries.
Local currency issuance
Despite the robust performance of foreign currency sukuk, total sukuk issuance globally fell 15 percent in the first half of 2025 to $101.3 billion. The decline was largely due to a steep drop in local currency sukuk, which fell to $59.8 billion from $81 billion a year earlier. Malaysia, Saudi Arabia, Qatar, and the UAE all reported weaker domestic issuance.
S&P attributed this to liquidity constraints in some markets and improved fiscal performance in others, reducing the need for domestic borrowing.
“For example, we have observed a significant drop in local currency issuances in Saudi Arabia, where banks’ liquidity is instead being channeled into financing Vision 2030. The drop was mainly underpinned by lower issuances from the government,” the agency said.
Shariah Standard 62
S&P also pointed to ongoing uncertainty surrounding the implementation of Shariah Standard 62 by the Accounting and Auditing Organization for Islamic Financial Institutions .
In April, AAOIFI announced amendments to the draft standard following industry feedback but did not provide details or a timeline.
The proposed guidelines aim to harmonize key elements of the sukuk structure, including asset backing, ownership transfer, and trading rules.
“The implementation process following the amendment is also uncertain. This means that it is now very difficult to determine the implications of adopting the new standard on market performance,” S&P noted.
“The need to issue prior to the adoption of the standard may also abate since issuers and investors no longer perceive the disruption as imminent,” it added.
Fitch Ratings had earlier warned that the standard could significantly reshape the sukuk market and potentially increase fragmentation if adopted in its current form.
Sustainable sukuk
Sustainable sukuk issuance surged 27 percent in the first half of 2025 to $9.3 billion, up from $7.4 billion in the same period last year, according to S&P.
Banks, led by the Islamic Development Bank, accounted for nearly half of the total, followed by corporates from the GCC and Malaysia. These instruments fund environmentally friendly projects such as renewable energy and green infrastructure.
Saudi issuers dominated the market, accounting for over 60 percent of total sustainable sukuk issuance. S&P attributed this to the alignment of Islamic finance with sustainability principles, the central role of the Islamic Development Bank, and strong funding demand from local banks.
In January, Fitch projected that outstanding ESG sukuk globally would exceed $50 billion in 2025, with Saudi Arabia playing a leading role.
The total value of ESG-focused sukuk climbed 23 percent year on year to $45.2 billion in 2024, according to Fitch.
In February, Saudi Arabia also raised €2.25 billion ($2.36 billion) through a euro-denominated bond offering under its Global Medium-Term Note Program, including its first green tranche.
