According to the UAE Islamic Finance Report 2023, UAE is the fourth largest Islamic finance market in the world in terms of assets. The report reveals that the Islamic finance sector grew by 11% in 2022, achieving a 69% increase over the past five years and a 163% increase over the past decade.
Islamic finance has become an integral part of the financial sector in the UAE, due to a strong regulatory environment that balances regulatory and legal requirements with the provisions of Islamic law. The assets of Islamic banks and windows in conventional banks currently represent 23% of total banking assets in the UAE, while the sukuk market is also expanding, with the recent issue of Islamic treasury sukuk in the UAE dirham by the federal government.
The report highlights the significant role played by the Islamic finance sector in the field of sustainability globally, due to the great compatibility and integration between the requirements of Islamic law and the aspirations of the Sustainable Development Goals. The rapid growth rate of ESG-related sukuk issuances is one of the indicators of the rapid development of sustainable Islamic finance, with total issuances reaching AED 120.3 billion by the first half of 2023.
Sustainable finance has witnessed rapid growth in the UAE since the issuance of the country’s first green sukuk in 2019, whether through Islamic capital markets or Islamic financing. The report notes that the Higher Shari’ah Authority at the central bank has encouraged Islamic financial institutions to play an active role in sustainable finance by adopting a balanced approach to its environmental and social aspects.
In 2023, it issued guiding principles on sustainable Islamic finance, emphasizing the Shari’ah principles and jurisprudential methodology for incorporating sustainability into Islamic finance. The report highlights that the central bank’s initiatives in sustainability and sustainable finance have included integrating sustainability standards into reserve management, supporting digital transformation in the financial system, internal transition towards sustainability, conducting stress tests for climate-related risks, commencing supervision of climate-related financial risks, meticulous monitoring of sustainability standards in the financial sector, launching principles for effective management of climate-related financial risks, and developing the sustainable Islamic finance sector.
The report concludes by stating that the central bank and the council continue to collaborate with Islamic financial institutions in the country to develop sustainable Islamic finance. A survey of the UAE Islamic banking sector reveals that 79% have a sustainability strategy, while 74% reported that their strategy has been approved at the board level.
While all Islamic banks said they have sustainability strategies in place, some of the conventional banks with Islamic windows are still developing their strategies. The report notes that the UAE is committed to building a more sustainable future, and the development of sustainable Islamic finance is an important step towards achieving this goal.
