Sukuk issuance across Gulf Cooperation Council countries rose 13.1 percent in the first four months of 2026, driven by strong local-currency borrowing in Saudi Arabia, even as regional conflict clouds the outlook for the Islamic finance industry.
In its latest report, “Islamic Finance 2026-2027: Navigating Rough Waters,” S&P Global Ratings said global sukuk issuance rose 20 percent during the period, driven by activity in Malaysia, Turkiye and Indonesia.
The figures highlight the growing importance of Gulf capital markets in the global Islamic finance industry, with Saudi Arabia continuing to drive sukuk activity through local-currency issuance. However, S&P said geopolitical tensions and the ongoing Middle East war are weighing on economic growth prospects across key Gulf markets and are expected to slow Islamic finance industry growth in 2026.
“We expect the growth of the global Islamic finance industry to slow in 2026, to about 5 percent-10 percent, as a result of the Middle East war, following expansion of 10.2 percent in 2025,” said Mohamed Damak, head of Islamic finance at S&P Global Ratings.
S&P said the conflict has significantly affected the economic growth outlook in several core Islamic finance countries, reducing growth opportunities for banking systems and affecting debt capital market activity.
The agency added that weaker economic growth prospects across most GCC countries would inevitably reduce growth opportunities for banks in the region, including Islamic lenders.
“The resolution of the Middle East war will determine whether or not this trend continues, as the GCC accounted for 45 percent of global sukuk issuance in 2025,” Damak added.
S&P’s base-case scenario assumes the US and Iran will reach an agreement that eases the effective blockage of the Strait of Hormuz, allowing meaningful oil and petroleum product flows to resume by the end of May, although intermittent disruptions could continue.
The agency said a gradual normalization of oil and gas supply, trade and transportation flows would be necessary for Islamic finance growth to recover in 2027.
Fitch Ratings said in a separate report that growing engagement from GCC investors and Islamic multilateral institutions is helping accelerate the development of Islamic finance in Central Asia, where governments are introducing regulatory reforms to expand sharia-compliant banking and capital markets.
Fitch said Kazakhstan and Kyrgyzstan are expected to lead regional growth, while Uzbekistan and Azerbaijan are building early foundations for the sector.
Source: Arab News