Global sukuk volumes will likely cross $1tn outstanding in 2025 according to Fitch Ratings. Sukuk will also remain a major part of the debt capital markets in a number of Organisation of Islamic Cooperation (OIC) countries.
The Fitch report says sukuk will stay significant in emerging markets (EM). During 2024 Sukuk represented 12% of all EM US dollar debt issued (excluding China). Fitch expects the overall funding environment to be favourable and expects the Fed to cut rates to 3.5% by the fourth quarter of current financial year. It says, however, issuers’ credit profiles could affect market access.
Global ESG sukuk issuance is expected to continue rising driven by investor demand, funding and diversification goals, and government sustainability initiatives in some Muslim-majority countries
Fitch Ratings global head of Islamic finance Bashar Al Natoor said, "With over 80% of the Fitch-rated US dollar sukuk being investment grade, the market has a robust credit profile, with growth supported by strong Islamic investor demand and strategic diversification goals.
He said, "Global sukuk is set to surpass $1tn in 2025, solidifying its role in the debt capital markets of OIC countries and emerging markets. However, growth could be affected by risks including sharia-compliance complexities, geopolitical events, rising rates, and higher oil prices."
Global outstanding sukuk crossed $930bn at end-2024, up 10% year-on-year, despite geopolitical escalations, with 26% in US dollars, and the majority by sovereigns. Sukuk were 25% of total dollar debt capital market issues in the core markets of GCC countries, Malaysia, Indonesia, Türkiye and Pakistan.
In the GCC, the DCM is about $1tn outstanding, with about 40% sukuk. Market diversity increased, with debut Sukuk by number of sovereign wealth funds, aircraft lessors, and government-related entities. ESG Sukuk reached $44.5bn outstanding up 23% year-on-year.
Fitch expects lower oil prices in 2025, which will support issuance. While not their primary funding source, Islamic banks and corporates could opportunistically diversify through sukuk.
The AAOIFI Sharia Board has made amendments and additions to the Sharia Standard No. 62 following comments received and will hold two final hearings in the coming months to present the draft developments. The impact will depend on the final standard, which jurisdictions and entities adopt it, and how it is incorporated in the sukuk documentation. These factors will determine impact on sukuk credit profiles, debt rankings, obligor IDRs, sukuk issuance trends, issuer willingness, and market appetite.