Surge in Sukuk Issuance in MENA Region Driven by Green and Social Projects
In a striking development, sukuk issuance across the Middle East and North Africa soared by a staggering 48 percent to reach $6.2 billion in the first half of 2024, showcasing the growing popularity of green and social projects in the region. This surge in Islamic bonds has been fueled by a focus on environmental, social, and governance-related initiatives, as well as sovereign issuances, signaling a strategic move to diversify funding sources and tap into the increasing investor interest in Islamic finance portfolios, as per data from Bloomberg’s Capital Markets League Tables.
The robust growth in the sukuk market is a testament to the global demand for Shariah-compliant investments. These instruments have emerged as key players in financing infrastructure, green projects, and social endeavors, attracting ethical investors and reflecting a notable shift towards sustainable finance.
Saudi Arabia led the charge in this growth with five sukuk issuances totaling an impressive $3.98 billion, while the UAE contributed $2.25 billion from three issuances. The region’s banks also played a pivotal role, with Emirates Islamic Bank making a significant debut issuance of $750 million.
This positive trajectory underscores the Islamic financial sector’s dedication to ESG investing, especially in light of the UAE’s significant climate finance announcements at COP28 last year.
However, despite offering competitive rates and terms compared to conventional loans, the Islamic loan market in the MENA region witnessed volumes of approximately $13.35 billion in the first half of 2024, marking a notable 21 percent year-on-year decline, mirroring the activity levels seen in the bond market post-pandemic.
In the same period, the sector was predominantly driven by global sovereigns, with Saudi Arabia leading the pack with $33.6 billion issued in both local and international capital markets, followed by Malaysia with $4.3 billion and the UAE with $2.9 billion. Key transactions included Saudi Arabia’s $5 billion sukuk split into three, six, and 10-year tranches, as well as Bahrain’s issuance of a $1 billion seven-year sukuk.
Venty Mulani, a data specialist for sustainable fixed income at Bloomberg LP, highlighted, “The continued expansion of MENA Islamic debt issuances aligns with broader trends in the fixed income space while pointing to increased issuer interest in sustainable debt and an appetite to diversify portfolios.” She added, “In the second half of the year, we can expect to see continued growth, particularly for ESG-related sukuk, reflecting a deepening commitment to sustainable finance in the MENA region.”
Fitch Ratings projected in April that global sukuk issuance will maintain growth throughout the rest of the year, fueled by rising funding and refinancing needs. The credit rating agency emphasized that the market’s steady development will be supported by economic diversification efforts across Gulf Cooperation Council countries and the maturation of the debt capital market.
Despite the positive outlook, potential risks to issuance include evolving Shariah requirements impacting credit risk, geopolitical uncertainties, and fluctuations in oil prices. Fitch highlighted the government’s push to develop the debt capital market and reduce bank reliance as factors that could drive sukuk issuance in the future.
Moreover, the GCC DCM has reached an outstanding total of $940 billion in sukuk and is on track to surpass the monumental $1 trillion mark. Bashar Al-Natoor, global head of Islamic Finance at Fitch Ratings, noted, “Around 80 percent of GCC sukuk is now investment-grade, and the GCC DCM is well on its way to crossing $1 trillion outstanding. Saudi Arabia, UAE, and Malaysia are likely to remain among the most active sukuk issuers.”
Fitch reported that global outstanding sukuk expanded by 10 percent year-on-year to reach $867 million by the end of the first quarter, with GCC countries accounting for 35 percent of this amount. Malaysia continues to lead the global market for Islamic bonds, with around 60 percent of its ringgit debt capital market in sukuk.