Demand for Islamic finance will continue to rise as strong economic activity in the Gulf Cooperation Council (GCC) and Southeast Asia is supported by diversification agendas, investment inflows and population growth, reported Bernama News Agency quoting a Moody's Ratings (Moody's) report.
Moody’s said in the report that it expects the demand would also be supported by sustained economic momentum and ambitious development agendas in core Islamic markets.
"However, we expect sukuk issuance volumes to fall as higher financing needs of the Indonesian and Turkish sovereigns will be largely offset by lower sovereign issuance from Saudi Arabia and Malaysia.
"Issuance of Islamic bonds by financial institutions and companies is likely to remain robust," it said.
According to Moody's, sukuk issuance is expected to fall to around $210bn-$220bn this year as a result of lower sovereign issuance, given lower sukuk refinancing needs and expectation that Saudi Arabia’s liability management operation will not be repeated in 2025.
"Financial institutions and corporate sectors will partially compensate for this fall on the back of lower and expected rate cuts.”
Moody’s added that the rating agency said growth potential for green and sustainable sukuk remains, even though issuance had declined by 10.6% to $9.5bn in 2024.
"We expect issuance levels to remain steady in 2025, underpinned by issuers' ongoing commitment to environment, social and governance agendas and increasing interest from both domestic and international investors,” it said.
Additionally, Moody's noted that demand for Islamic investment funds remains solid, with consolidation likely in the takaful sector.
"We expect takaful premiums to grow moderately in the next two to three years, underpinned by economic expansion and rising demand for medical insurance and other compulsory products.
"Competition, increasing climate risk, digitalisation and regulatory improvements are likely to drive mergers and acquisitions in the takaful sector," it added.