Saudi Arabia is set to strengthen its influence in the global Islamic finance sector in 2025, driven by economic diversification and a surge in sukuk (Islamic bond) issuances. The country’s banking sector, bolstered by Vision 2030 reforms, is expected to be a major contributor to the expansion of Islamic banking assets, according to recent industry analysis.
Investor interest in Saudi Arabia’s debt market remains high, especially as interest rates climb. The nation led the Gulf region in primary bond and sukuk offerings in the first quarter, accounting for over 60 percent of all issuances. This momentum is projected to continue, supported by ongoing economic reforms and strong demand for financing across various sectors.
Alongside Saudi Arabia, other Gulf countries—such as the UAE, Qatar, Bahrain, and Oman—and several Asia-Pacific nations are also expected to support the growth of the Islamic finance market. Islamic banks are anticipated to outpace conventional banks in financing growth, although currency fluctuations may pose some risks.
The industry saw a robust 10.6 percent increase in 2024, with total outstanding sukuk exceeding $1 trillion for the first time. Banking assets made up the majority of this growth, with Saudi Arabia playing a central role. The sector’s expansion is closely tied to the region’s economic transformation efforts and continued preference for Shariah-compliant financial products.
Projections indicate that global sukuk issuance could reach $190 billion to $200 billion in 2025. Sustainable sukuk, which finance green and social projects, are expected to remain stable, supported by new international guidelines that broaden eligible asset classes. Saudi Arabia accounted for a significant share of these issuances, while the UAE saw a notable decline.
Despite positive growth prospects, challenges remain. A significant drop in oil prices or changes in Shariah standards—such as the proposed Shariah Standard 62—could disrupt the sukuk market by altering the classification of these instruments. If implemented, these changes might lead to higher costs for issuers and a more fragmented market, making it less attractive to some investors.
In summary, Saudi Arabia and the broader Gulf region are poised to drive the continued expansion of Islamic finance, but must navigate evolving market conditions and regulatory shifts.