The ESG sukuk market is growing fast. In 2024, issuance of ESG sukuk grew by 14% year-on-year, to $15.2 billion. Over that period, it represented 1.8% of total ESG bond issuance, and 6.1% of total sukuk issuance.

ESG debt, however, now makes up almost 7.5% of total debt finance raised. This represents an opportunity for sustainable sukuk. 

Sukuk explained
Islamic finance refers to financial activity that is carried out in accordance with Islamic law, or Shariah. One of the principles of Islamic finance is that returns from financial instruments are linked to income or profits from real economic activity.

One of its key characteristics is a prohibition on the collection of interest by lenders. To address this, Islamic financiers have developed sukuk, financial instruments that generate returns from an underlying portfolio of assets, which generate returns similar to those of conventional fixed-income products, such as bonds. They typically ensure Shariah-compliance by granting the holder a nominal ownership share in the underlying asset pool, without recourse to the assets, much like a senior unsecured bond. Sukuk issuers are also required to demonstrate that the issuance complies with the principles of Shariah. This usually requires a Shariah board, made up of Islamic scholars, to certify that the underlying assets are Shariah-compliant.  

Islamic finance continues to show strong growth. In 2024, issuers raised $250 billion through sukuk, an increase of 16% compared with 2023. This is a reflection of the growing integration of Islamic economies into global capital markets, and a desire among key Islamic sovereign issuers to diversify their economies, and for banks and companies to participate in that transformation and access new sources of funding. ​

​In absolute terms, ESG sukuk is growing fast, albeit from a low base. In 2020, issuers sold $4.8 billion of ESG sukuk. In 2024, that figure had risen to $15.2 billion. There is potential for further growth as the ESG sukuk market catches up with its conventional peer, especially given the growing interest by Islamic world countries in funding climate action and progress towards the UN Sustainable Development Goals.

So, what will it take to unlock more supply?
It is key to increase familiarity of sukuk among investors and non-Islamic issuers, and to address the perceived complexity of ESG sukuk among existing sukuk issuers.
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To help achieve this, a number of stakeholders – including the Islamic Development Bank, the UK and Indonesian governments, and LSEG – came together at COP26 in 2021 to launch the High-Level Working Group on Green and Sustainability Sukuk.

One of the goals of the Working Group was to produce guidance to give issuers and investors direction on how to label sukuk as green, social or sustainability. That guidance was published in April 2024 as a collaboration between three key actors within the industry – the Islamic Development Bank, an AAA-rated supranational owned by 57 member countries of the Organization of Islamic Cooperation and one of the largest issuers of sukuk; the International Capital Market Association (ICMA), the steward for the global Principles governing green and sustainable debt; and LSEG, one of the world’s leading financial market infrastructure providers – and through the London Stock Exchange, one of the largest markets for sukuk globally.

A key observation in the guidance is that there are strong synergies between Islamic finance and sustainable finance. For example, both promote sustainable development, financial inclusion and environmental stewardship. Both often exclude activities that can lead to social impacts which some perceive as negative – such as alcohol, gambling and weapons and both offer potential resilience to financial crisis, by avoiding speculative instruments and instead offering strong linkages to the real economy. Another key observation is that all eligible projects categories within the Green and Social Bond Principles are consistent with Shari’ah principles. Sustainable sukuk with a theme, such as “transition” sukuk, “blue” sukuk or “gender” sukuk can also be issued in line with the ICMA Climate Transition Finance Handbook and specific guidance on blue finance from “Bonds to Finance the Sustainable Blue Economy: A Practitioner’s Guide” and “Bonds to Bridge the Gender Gap: A Practitioner’s Guide to Using Sustainable Debt for Gender Equality” respectively.

Steps for issuers
The guidance provides useful information for potential issuers of ESG sukuk. It explains the types of projects that are likely to be eligible, and the steps that issuers need to take to issue ESG sukuk instruments.

These steps will vary, depending on whether the issuer is already active in the conventional bond market, in the ESG bond market, or in the sukuk market. For example, issuers of non-Shari’ah bonds would need to assess whether they have sufficient Shari’ah-compliant assets to underpin an issue, while existing sukuk issuers would need to create a sustainable finance framework to ensure that the projects they fund from sustainable sukuk are aligned with ICMA’s Green or Social Bond Principles.

Steps for investors
For investors, meanwhile, ESG sukuk offer potential exposure to new issuers, often from countries that are under-represented within ESG debt portfolios. ESG sukuk issuance to date is predominantly from similar sectors as the conventional ESG debt market, such as sovereigns, banks and utilities, although we are now also seeing issuance from sectors such as real estate and logistics.

Bright prospects for sustainable sukuk
Significant sovereign and corporate issuers are already tapping the sustainable sukuk market. In 2024, Indonesia came to market with $3.3 billion of issuance as part of its ongoing green sukuk programme. Corporate issuers included Malaysia Rail Link and Aldar Investment Properties and bank issuers included Dubai Islamic bank and Al Rajhi Bank.

There is also potential for non-Islamic world companies to enter the ESG sukuk market. In the traditional bond market, we have seen a handful of non-Islamic world issuers sell sukuk. For example, two US aircraft leasing firms, which count Islamic world airlines as some of their largest customers, have looked to align their investor base with that of their customers.

In conclusion, we see a congruence of factors – e.g. growth within the Islamic world, fiscal imperatives, the need for climate and Sustainable Development Goal (SDG) financing, greater capital markets integration, and deeper capital markets familiarity – that are set to drive strong growth in sustainable sukuk over the coming years.

LSEG

Across the globe, Muslim communities find themselves disproportionately affected by climate change, with extreme weather events, rising food insecurity, and other climate impacts taking a toll on their livelihoods, cultural practices, and spiritual life. 

In the last few years, devastating floods swept through Pakistan, affecting millions, displacing thousands, and leaving entire communities struggling to rebuild. In Indonesia, one of the world’s most populous Muslim-majority countries, rising sea levels threaten to submerge coastal villages and erode vital agricultural lands. Meanwhile, in parts of the Middle East and North Africa, persistent droughts and water scarcity are increasing pressures on already fragile ecosystems and economies.

hese climate pressures extend beyond immediate threats to survival. Climate change has also begun affecting food security in Muslim-majority regions, especially during Ramadan, a holy month where fasting is practised from dawn until dusk. In communities already grappling with the impacts of droughts or floods, maintaining food stocks for Ramadan can become a significant challenge. In Somalia, where cycles of drought and flash floods have eroded food systems, many families are forced to navigate long-standing shortages, with climate-induced shocks compounding existing vulnerabilities.

Food insecurity is a worsening crisis as global warming affects harvests, disrupts fisheries, and drives up food prices, making the observance of Ramadan particularly strenuous, both physically and economically. This brings climate change into the daily lives and religious practices of millions in profound ways, reminding us that the climate crisis is as much a social and economic issue as it is an environmental one.

Islamic finance: a financial system grounded in ethical responsibility
Islamic finance has been operating in the global financial system for decades, providing an ethical foundation rooted in Islamic principles that promote fairness, social responsibility, and environmental stewardship.

Ethical banking is a core pillar of Islamic finance. Through principles like zakat (charity) and waqf (endowment for public good), Islamic finance encourages financial activity that uplifts communities, supports sustainable projects, and avoids investments in industries harmful to people and the planet. 

Many Islamic financial institutions in countries like Malaysia, the United Arab Emirates, and Saudi Arabia already support projects aimed at protecting the environment and enhancing social welfare. Success stories are already emerging. Malaysia’s green sukuk initiative has mobilised billions for renewable energy projects, while the UAE’s recent US$3.9 billion in green sukuk issuance demonstrates growing momentum. Saudi Arabia’s Vision 2030 has allocated US$50 billion for renewable initiatives, targeting an emissions reduction of 278 million tons by 2030. 

A US$400 billion opportunity for climate action
While Islamic finance principles already provide a framework that aligns well with sustainability, there is still much room to strengthen its role in addressing the climate crisis, enhancing resilience in vulnerable communities, and shifting investments towards clean, renewable energy.

A new report by Greenpeace Middle East & North Africa (MENA) (as part of the Ummah For Earth Alliance) and the Global Ethical Finance Initiative (GEFI), highlights the transformative potential of Islamic finance in accelerating the global transition to renewable energy and addressing the triple planetary crisis: climate change, pollution, and biodiversity loss.

The report shows that the Islamic finance industry continues its robust expansion, with assets projected to reach USD$ 6.7 trillion by 2027, and that a strategic allocation of just 5% toward renewable energy and energy efficiency initiatives could mobilise approximately USD$ 400 billion by 2030 – a transformative sum for climate-vulnerable regions.

​Islamic finance can help foster climate-resilient infrastructure, restore and protect biodiversity, and finance climate adaptation projects in at-risk communities. By explicitly directing funds away from fossil fuels and into green energy projects, Islamic financial institutions like the Islamic Development Bank (IsDB) can lead by example, especially in regions that are both vulnerable to climate impacts and hold significant influence in the global fossil fuel market. These institutions must accelerate their commitment to renewable energy investments.

As climate impacts intensify, Islamic finance offers a bridge between faith-based values and practical climate solutions. The convergence of Islamic finance and climate action represents more than a financial opportunity – it’s a moral imperative aligned with Islamic principles of environmental stewardship (khalifah) and balance (mizan).

Islamic finance, grounded in ethical principles and community responsibility, has a unique role to play in the global climate movement, particularly in the Global South. For millions across the globe, this form of finance offers a culturally relevant and powerful instrument to not only protect their communities from the worsening climate crisis but to promote environmental and economic sustainability in ways that align with their beliefs. Islamic finance offers a bridge between economic strength and ethical stewardship, creating pathways toward a more equitable and sustainable world for all.

​GreenPeace

Recent statistics published by Juniper Research suggest that the value of open banking transactions will grow from $57 billion globally in 2023 to $300 billion by 2027 – a sizeable market indeed.
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Banks across the globe are, although in a nascent stage, gearing up for faster adoption of open banking platforms. This trend is seen equally in conventional and Islamic banking, with lenders working alongside FinTechs to develop APIs and payment gateways that offer the levels of security needed to enable third-party providers to access sensitive financial data.

As with legacy banking, regulatory oversight and infrastructure exist for open banking. A framework for the governance of open banking platforms in the UAE has recently been established, which banks are gearing up to comply with. They are also using payment gateways to enable clients to pay utilities and services bills.

Why open banking?
Today’s customer demands agility when undertaking transactions, and siloed operations can negatively affect an organisation’s ability to meet that demand.

The key objective of integrating open banking is to provide efficient and complete financial services to customers without the need to shuffle between different apps to complete a single transaction. Open banking is used by many service providers, such as telecoms operators, utility providers and online trading platforms, as well as online and app-based retailers.

Beyond streamlining payments, open banking can also be used to amplify the customer experience in other ways. The technology behind the payment capability can be used to analyse data in order to personalise banking services.

Open banking creates opportunities for lenders to vastly improve the customer experience, to expand, and to generate new revenue streams as opportunities to collaborate with more third-party provider partners grow. By partnering with such providers, banks can have considerable impact on their customers’ experiences across more than just payments. In enabling access to data and data-sharing, banks can ensure customers can enjoy speed, convenience and efficiency when undertaking a number of tasks online and in-app.

Open banking and Islamic finance
So, is open banking compatible with Islamic finance? It is indeed. Open banking emphasises transparency, clarity and secure data sharing, as well as detailed disclosure. Islamic banking, with its focus on ethical, transparent financial practices, is poised to be the perfect partner.

Customers must acknowledge that their data will be shared with the third-party providers and agree for their bank to share such data, creating transparency and clarity for all parties. Banks must take every precaution to ensure that all shared data is subject to the highest levels of protection and security. All elements of open banking align with the principles of Islamic finance.

Of course, Islamic banks must also ensure that the third-party providers align with the tenets of Islamic finance. To assure compliance with Sharia principles for customers who wish to use open banking, Islamic banks must make sure all products, services and providers are strictly monitored and approved by Sharia governance units that are supervised by experienced boards comprising eminent scholars.

As with traditional banking, adopting open banking in Islamic finance has potentially far-reaching consequences. Open banking can enhance many products, services and solutions designed for Muslim customers, from Sharia-compliant FinTech and investment apps to those offering fulfilment of Zakat obligations. Furthermore, integrating open banking into Islamic finance can help drive inclusivity in the banking sector, particularly in areas with large unbanked or underbanked populations, which is a key priority for the Islamic finance sector.

With the value of open banking set to increase exponentially in the coming years, it is clear that Islamic banks must join traditional banks in partnering with third-party providers to expand its adoption.

It is a win-win situation for banks and customers. In adopting open banking, we can contribute immensely to the growth of Islamic banking and create far-reaching impact across both our customer base and the Islamic finance ecosystem itself.

​The National News

Issuance activity in the Islamic bonds market has inched up recently, driven by the US Federal Reserve’s latest policy shift, according to a new analysis.

At the end of the third quarter of the year, global sukuk stood at $900 billion, posting an 8.5% growth compared to a year earlier, Fitch said.

The Fed cut its benchmark interest rate for the first time in four years by 0.50 percentage points. The move has had a positive impact on financing conditions, the ratings agency said.

“Global sukuk issuances are rising following the US Fed’s rate cut… with financing conditions improving,” the report said.

“We are seeing a build-up of the sukuk pipeline partially supported by the recent Fed cut,” noted Bashar Al Natoor, Global Head of Islamic Finance at Fitch Ratings.

Al Natoor added that the majority of the bond-like instruments the agency has rated (81.5%) are investment-grade, while nearly all issuers (95%) have stable outlooks and have likewise not defaulted, indicating that the credit conditions in the market have improved.

The agency, however, pointed out that there are still drawbacks that could negatively impact the market, including “sharia-related complexities”, as well as heightened geopolitical tensions and crude market volatilities.

A major player in the sukuk market, the Gulf Cooperation Council (GCC) region saw bonds and sukuk primary issuances hitting $75.5 billion in the first half of the year, rising by 38% over a year earlier, according to a separate report by Markaz. The funds were raised through 173 sovereign and corporate issuances.

​​Zawya

Islamic finance, once mostly found in Muslim-majority countries, is now spreading its wings across the globe. Experts predict that by 2025, Islamic finance assets will reach nearly $5 trillion. This growth, clocking in at an impressive 10-12% annually over the past decade, is no small feat. It spans various sectors, including banking, capital markets, money markets, and insurance (takaful). But what’s really interesting is that non-Muslim-majority countries like the UK, South Africa, and even Luxembourg are jumping on board, drawn by the ethical principles and Sharia-compliant financial products Islamic finance offers.

A 2024 report hints that the Islamic finance market is expected to grow at a compound annual growth rate (CAGR) of greater than 10% during the forecast period from 2024 to 2029. One big reason for this expansion is that Islamic finance is based on ethical investing. Thus, this growth is attracting both Muslim and non-Muslim investors, drawn by the ethical investment principles and increasing global awareness of Islamic finance. It avoids interest (riba) and investments in industries considered harmful, like alcohol or gambling. These values are indeed gaining traction even beyond the Muslim world as more investors look for ways to put their money into things that align with their moral compass. 

As Professor Rodney Wilson, a pioneer in Islamic finance research, says, “Islamic finance offers a transparent and socially responsible alternative that more people are looking for, especially as ethical investing becomes more popular.“

Islamic Finance Grows in Non-Muslim Majority Countries
Let’s take a closer look at the UK, a country leading the charge in adopting Islamic finance. London, in particular, has become a major hub for Islamic banking and finance. The UK government has even issued sovereign sukuk (Islamic bonds) multiple times, attracting a flood of international investments. In fact, back in 2014, the UK became the first non-Muslim country to issue sovereign Sukuk, marking a momentous milestone in Islamic finance. Since then, the UK has strengthened its position as a hub for Islamic finance, attracting substantial interest from global investors. 

According to Stella Cox, Managing Director of DDCAP Group, “London’s role as a global financial center has been pivotal in the growth of Islamic finance. The city’s infrastructure and regulatory environment are conducive to Sharia-compliant financial activities.”

South Africa is also catching up with Islamic finance, with banks like Absa now offering Sharia-compliant financial products that cater to both Muslims and non-Muslims. “The demand for Islamic finance in South Africa is growing, driven by both the Muslim community and ethical investors,” says Ebrahim Patel, CEO of Oasis Group Holdings.

Luxembourg was the first Eurozone country to issue Sukuk in September 2014, with a value of €200 million and a tenure of five years. This issuance was facilitated by legislation passed on July 2, 2014, enabling the rental and sale of three administrative buildings to underpin the Islamic bond. This positioned Luxembourg as a notable contributor in facilitating cross-border Islamic financial transactions within the Eurozone. This global spread again speaks to the dynamic nature of the industry and its ability to appeal to a varied class of investors, regardless of location or faith.

These countries are not alone in seeing the benefits of Sharia-compliant finance. As of 2023, the total value of Sharia-compliant financial assets was estimated at around $2 trillion. These assets are projected to grow significantly, reaching more than twice and a half in trillions of its 2023 value by 2026. The demand is clearly there, and the opportunities are growing.

Drivers of Growth and Drawbacks
One of the main drivers of this growth is the ethical investment principles that Islamic finance is known for. These principles sit well with a wide audience, not just Muslims. “Islamic finance’s emphasis on ethical and socially responsible investing is attracting a diverse group of investors,” notes Dr. Aishath Muneeza, an expert in Islamic finance.

Government initiatives and support have also played an important role. The UK government’s issuance of Sukuk has set a precedent for other non-Muslim-majority countries to follow. In 2022, the global Islamic finance industry saw a 9.4% increase in assets, largely driven by growth in banking assets and the Sukuk market. Although this was slightly lower than the 12.2% growth seen in 2021, it still reflects the sector’s robust expansion. 

Recent regulatory changes are equally helping shape the future of Islamic finance. The Islamic Financial Services Board (IFSB) adopted two important new standards: IFSB-23 and IFSB-26. IFSB-23, the Revised Capital Adequacy Standard for Institutions offering Islamic Financial Services (IIFS) in the banking segment, and IFSB-26, the Core Principles for Islamic Finance Regulation (Financial Market Infrastructures), were both adopted on December 9, 2021, during the 39th Meeting of the IFSB Council held in Abu Dhabi.

Despite this promising growth, Islamic finance still faces some hurdles in non-Muslim-majority countries. One of the biggest challenges being the lack of specific regulations tailored to Islamic finance. Without clear legal frameworks, financial institutions can run into all sorts of legal and operational issues. For instance, Sharia principles, such as the prohibition of interest, don’t always align with conventional banking regulations. This makes it tricky for Islamic financial institutions to operate smoothly.

“The lack of a standardized regulatory framework is a significant barrier to the growth of Islamic finance,” explains Dr. Mohamad Akram Laldin, Executive Director of ISRA. This is a common concern in both Muslim-majority and non-Muslim-majority countries alike.

There’s also the matter of awareness—or lack thereof. Many regulators and consumers in non-Muslim countries have little understanding of Islamic finance principles. According to a report from Fitch Ratings in 2023, public awareness and understanding of Islamic finance remains a critical challenge for the industry’s growth, particularly in non-Muslim regions, the major barriers being limited knowledge and lack of sharia sensitivity. Equally, S&P Global has cited the challenges of awareness in non-core markets and how countries like Indonesia have lower penetration of Islamic finance. 

Dr. Natalie Schoon, Principal Consultant at Formabb, stresses that “Education and awareness are key to overcoming misconceptions about Islamic finance.“

Industry experts agree that awareness initiatives are critical to overcoming this. “We need to educate consumers, not just about the basics of Islamic finance, but about its benefits—how it aligns with sustainable and ethical investing,” adds Samira Abbasi, an Islamic finance expert.

Fintech and Blockchain in Islamic Finance
As with many industries, Islamic finance is evolving with the rise of technology. Fintech and blockchain are particularly noteworthy trends changing the fate and future of the sector. Blockchain technology has the inherent potential to shift in a big way Islamic finance by bettering transparency and reducing uncertainty (gharar) in transactions, which aligns with Sharia principles.

Digital banking platforms are also making it easier for people to access Sharia-compliant financial services. Platforms like Ethis, an Islamic crowdfunding site, are offering ethical investment opportunities to a global audience. This integration of fintech is expected to play a critical role in helping Islamic finance reach a broader market, particularly in regions where traditional banking services may not be as readily accessible.
“Blockchain technology is becoming increasingly popular in the finance industry because of its ability to improve transaction efficiency, transparency, and security,” says Umar Munshi, Co-Founder of Ethis Group.

To fully unlock the potential of Islamic finance in non-Muslim-majority countries, education is critical. There’s a real need for consumers, regulators, and financial institutions to better understand Islamic finance. Industry collaborations are playing a big role in addressing this. For example, the UK Islamic Finance Council has been working with global partners to promote Islamic finance education through workshops and certification programs.

But it’s not just consumers who need educating. Regulators also need to understand how to support the growth of Islamic finance through legal frameworks. Mohammed Amin, former head of Islamic finance at PwC, highlights that “It’s not just about offering Sharia-compliant products. We need to make sure the legal systems can support these products and allow them to thrive.”

Future Outlook and Growth Projections
The future of Islamic finance looks promising, especially with ongoing educational initiatives and industry collaborations. These efforts are vital for raising awareness and understanding of Islamic finance principles. “Collaborations between industry players and educational institutions are vital for the sustainable growth of Islamic finance,” notes Professor Habib Ahmed, Chair in Islamic Law and Finance at Durham University.

On the horizon, Islamic finance is on track to keep growing, especially in non-Muslim-majority countries. As ethical and inclusive investing becomes more popular, Islamic finance could play a monumental role in shaping the global financial landscape. 

As H.E. Dr. Zeti Akhtar Aziz, Former Governor, of Bank Negara Malaysia, points out in her keynote speech at the 14th IFSB Summit 2019 – Islamic Finance for Sustainable Development in the Era of Technological Innovations, “As we move into a transformed and more uncertain global environment, it will be even more important for Islamic finance to keep pace with global trends and be well-positioned to respond to the changing demands. Islamic financial institutions […] remain relevant in this fast-changing domestic and international environment.”

In 2021, Islamic financial institutions worldwide reported a dramatic increase in net income, from $10.5 billion in 2020 to $32 billion. This surge reinforces both the profitability and resilience of the sector, even in the face of global economic upheavals. But, in all, Islamic finance’s ethical foundations are striking a chord with investors everywhere, and this trend doesn’t seem to be slowing down anytime soon.

disruptionbanking.com

The financial world is swiftly changing, propelled by technological advancements and regulatory updates. From tokenised assets, to campaigns for financial literacy, what are some of the key developments in the sector?
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The financial sector is witnessing a rapid advancements and a surge in asset growth, propelled by a combination of technological innovation, regulatory changes, and shifting market dynamics. Central to this transformation is the adoption of digital assets and the exploration of new financial instruments, which are redefining the boundaries of traditional banking and investment strategies. Below, we’ll explore some of the new actors at play.

Innovations in Tokenised Money and Assets: The HKMA’s Project Ensemble
Project Ensemble, spearheaded by the HKMA, marks a significant leap towards the integration of tokenised money and assets into the mainstream financial ecosystem. This initiative is a collaborative effort involving major financial institutions such as HSBC, Hang Seng Bank, and Ant Group, aiming to explore and experiment with tokenised deposit use cases.

The project’s ambition extends beyond local experimentation, as the HKMA plans to engage with international stakeholders, including other central banks and organisations, to participate in future experiments and exploration within the wCBDC Sandbox.

Eddie Yue, Chief Executive of the HKMA, emphasised that Project Ensemble will inject fresh impetus into Hong Kong’s vibrant financial industry, reinforcing its leading position in the realm of tokenised money and assets.

Growth and Challenges for Islamic Finance
The Islamic finance sector is poised for sustained growth into 2024, buoyed by robust economic activity in core markets and high oil prices. This sector’s resilience is further supported by ambitious development agendas in the Gulf Cooperation Council (GCC) and Southeast Asia, alongside a burgeoning demand for Shariah-compliant financial instruments.

Moody’s Investors Service (a financial services company) anticipates that Islamic banking assets will continue to outpace conventional asset growth, with Saudi Arabia, Malaysia, and the UAE leading the charge. However, this sector is not without its challenges.

Despite the optimistic outlook, the Islamic finance industry faces hurdles such as the potential for sukuk issuance volumes to stabilise or slightly decline due to varied sovereign issuance activities. Additionally, the sector grapples with ongoing challenges in the takaful (Islamic insurance) market, which may prompt consolidation due to inflationary pressures and competitive dynamics. Nonetheless, the sector’s momentum is expected to remain strong, underpinned by stable investor demand and supportive regulatory improvements.

Allianz Trade’s New B2B E-commerce Solutions
Allianz Trade is revolutionizing B2B e-commerce with the launch of Allianz Trade pay, a comprehensive payment solution designed to meet the unique needs of the sector. This innovative suite includes instant financing through partners, digital buyer onboarding, online fraud risk management, and trade credit insurance at checkout.

By offering e-commerce credit insurance, Allianz Trade provides real-time protection against non-payment risks, catering to marketplaces, BNPL providers, and e-merchants. The introduction of Allianz Trade pay, with its blend of existing and new services, underscores the company’s commitment to supporting the B2B ecosystem, enhancing efficiency, and adapting to the burgeoning e-commerce trade flows.

Currencycloud’s Expansion in Singapore: A Strategic Move
Currencycloud’s strategic expansion into Singapore, marked by the in-principle approval for a Major Payment Institution licence from the Monetary Authority of Singapore (MAS), signifies a pivotal step in its global growth. This licence will empower Currencycloud to offer a comprehensive suite of intra-regional and international services, enhancing its ability to facilitate seamless transactions across 180 countries and territories. By leveraging Singapore’s robust financial infrastructure and strategic location, Currencycloud aims to provide businesses with the ability to make conversions and payouts in local currencies and time zones, thereby streamlining payment processes and fostering innovation in the Asia-Pacific payments landscape.

Empower’s Strategy for Confronting Everyday Money Concerns
Empower is addressing Americans’ everyday money concerns through its innovative “What’s Next” brand campaign, featuring new TV spots aimed at demystifying financial stressors.

By focusing on common financial queries, such as affording life’s milestones or planning for retirement, Empower encourages open conversations about money. The campaign challenges traditional taboos and anxieties surrounding financial discussions, promoting a more transparent and confident approach to financial planning.

Empower’s initiative reflects a broader commitment to empowering individuals to navigate their financial futures with confidence, leveraging advice from financial professionals and real-time technology to provide clear, actionable answers to pressing financial questions.

In light of the rise in ethical consumption, new research from leading SaaS cloud banking platform, Mambu, reveals that just over a quarter (26%) of Gen Z Muslims solely use Islamic banking, though 85% of them are interested in banking with a financial institution that offers Shariah-compliant products, an increase from 2021. 
​The findings show that 31% of Gen Z Muslims are already using a mix of traditional and Islamic banking. Making it clear that banks already have the capability to cater to the demand for Islamic banking products.

More than 560 banks worldwide adhere to Islamic principles; however, the report, titled ‘Beliefs & Business: The Shape of Islamic Finance in 2024’ reveals that 39% of Muslims don’t know that Islamic banking is a possibility. Just over a quarter (28%) of Muslims say that they don’t have easy access to banks that adhere to Islamic principles, while a fourth (25%) state that they need more from their banks and a further one-fifth (18%) don’t trust their banks’ ability to be fully Shariah-compliant.

The global research, which was first initiated in 2021 and repeated in 2024, has highlighted that although this group of consumers try to actively seek out Islamic banking products, they continue to be underserved. This presents an opportunity for financial institutions to expand their Islamic financial services in the UK given that 31% of millennial and Gen Z Muslim consumers say they use traditional/investment banking, but are considering Islamic banking.

If banks want to reach millennial and Gen Z UK Muslim consumers with Islamic financial services, they have education and access work to do first – 44% of UK respondents say the reason they don’t use Islamic banking is because they didn’t know it was a possibility – the joint highest percentage among the regions surveyed, along with Saudi Arabia. In fact, the UK is the only country where less than half of respondents (35%) say they are aware of the product range of Islamic banking.

Many banks may be under the misconception that there isn’t a demand for Islamic banking products, however, further findings revealed that faith-based and ethical values are still very important to millennial and Gen Z Muslims in the UK. 82% of them say it is important the investments the bank makes using their money does good in the world, and the same percentage say it is important these investments are ethical.

Mambu

To meet sharia rules, Islamic financial institutions are increasingly looking to the energy transition and socially responsible investing, boosting decarbonisation efforts and bringing new business opportunities in the Muslim-majority world.

​Dedicated green investment is at an early stage in Islamic finance, but it’s growing quickly, particularly in the UAE, Saudi Arabia, Malaysia and Indonesia, as these countries seek to transition from hydrocarbons, reach net zero targets and attract foreign investors with environmental and social priorities. Their financial regulators are developing principles and taxonomies to facilitate this process.
​Arguably, Islam, by its nature, is in tune with sustainable principles. Preserving life is one of the five pillars of sharia. While purchasing stocks and shares, or equities, is allowed within Islamic finance, investing in ‘sin stocks’ that potentially harm life, including arms, alcohol and tobacco, is classed as ‘haram’ and forbidden. 

Islamic finance forbids earning money from interest charged on loans or deposits. Bond investment falls foul of this prohibition. However, there is a sharia-compliant version of the bonds market known as sukuk, under which investors receive a share of the profit generated by assets.

Rise of sustainable Islamic finance
In 2017, Malaysia issued the world’s first ‘green sukuk’, raising $58m to finance a solar project. The S&P Global analysis explains that globally, green sukuk issuance was $11bn in 2023 compared to less than £400m in 2017 — an almost 30-fold increase.

Indonesia has issued a total of £7bn in green sukuk since 2018, to finance energy, transportation, waste management and climate resilience projects. The UK’s Islamic Finance Council estimates that, globally, green and sustainable sukuk could generate between $30bn and $50bn towards the 17 SDGs by 2025.

The core Islamic countries – excluding Iran – allow both Islamic and non-Islamic finance issuance and they are rapidly adopting sustainable finance instruments in both financial ecosystems, in local and foreign currencies. S&P Global reveals that the issuance of green, social, sustainability and sustainability-linked (GSSSB) bonds) in the Middle East more than quadrupled in the first nine months of 2023, to reach $19bn. Saudi Arabia and the UAE made up more than 80% of this total.

Green and sustainable sukuk is only part of this picture, but it has become emblematic of a re-orientation of Islamic financial systems.

Impact of COP28
Mohamed Damak, global head of Islamic finance at S&P Global Ratings said: "Market participants are coming to the conclusion that in the debate about climate and energy transition, Islamic finance can bring something to the table."

"Holding the COP in Dubai in 2023 undoubtedly had an impact on local issuance, a phenomenon we have observed in other COP host countries," Damak added. "While 63% of sustainable sukuk issuance in 2023 was green sukuk, we believe that 2024 could be the year that transition-labelled instruments go towards decarbonising hard to abate sectors in the Middle East."

Financial regulators are following this investment trend. The UAE, Qatar, Indonesia, Malaysia and Bangladesh have published taxonomies and principles for sustainable finance. In 2022, the ASEAN Capital Markets Forum released a sustainability-linked standard for bonds, which covers sukuk and, in 2023, the Arab Monetary Fund released guidance for sustainable sovereign instruments.

Meanwhile, the International Islamic Financial Market (IIFM), the Islamic Financial Services Board (IFSB) and the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) are working towards regulatory consolidation for sustainable investment.

Charitable obligation of Islam
There is another globally significant Islamic contribution to sustainable development. It is a requirement of Islam, known as zakat, that qualifying individuals donate a proportion of their wealth to charitable causes. Globally the potential size of the zakat pool has been estimated at between $200bn and $1tn a year. 

The United Nations Development Programme notes that zakat, one of world’s largest forms of wealth transfer to the poor, aligns with numerous SDGs. It says: "Considering the estimated $2.5 trillion annual gap in SDG financing, as reported by the World Economic Forum, a funding source this large cannot be ignored."

The UNDP has collaborated with Indonesia’s zakat agency to install micro hydropower plants bringing electricity to more than 4,500 people. Future projects will use zakat funds to protect biodiversity.
Largely unappreciated by the rest of the world, it can be argued that Islamic finance is particularly in tune with a global energy transition and sustainable development.

The concept of risk sharing is central to Islamic banking and finance, which exist to further the socio-economic goals of communities. Green sukuk has proved a useful mechanism, particularly because its investment is linked to defined assets rather than generalised goals. 

​This rapidly growing asset class has helped to raise awareness internationally that Muslim countries care as much about climate change as non-Muslim ones, and that they are seeking to slow it down. It also provides a means for foreign investors to help oil-dependent states to decarbonise.

Islamic banks in many countries continue to face a limited range of Islamic liquidity management instruments (ILMI) compared with conventional banks despite recent initiatives in a number of markets, Fitch Rating says. ILMI can provide Islamic banks more funding options and can help them invest their excess liquidity. Gaps in ILMI are more prominent in countries where Islamic banking is still-developing and niche.

Sharia-compliant liquidity facilities from central banks can provide Islamic banks an additional source of short-term funding. In February 2024, Central Bank of Jordan introduced new short-term liquidity facilities to Islamic banks. In Bangladesh, the central bank introduced new Islamic liquidity facilities after Islamic banks faced sizable customer deposit outflows in 2022-2023 amid reports of financing irregularities. Central bank Islamic liquidity facilities are also offered in most of the GCC countries, Malaysia, Turkiye, Indonesia, Pakistan, and Tunisia. However, these facilities, which could help avert a liquidity crunch, are not present in Oman, Morocco and Kazakhstan.

Islamic interbank markets are much shallower than conventional markets, more so in countries with few Islamic banks. Fitch noticed cases, including in the UAE, where Islamic banks are unable to place funding with conventional banks, unless the latter use it for their sharia-compliant business and the contract is sharia-compliant. In markets like Oman, regulations prevent Islamic banks and Islamic windows from placing funds with conventional banks. This limits counterparty choice.

Government sukuk can grant Islamic banks more options to invest their excess liquidity in high quality liquid assets (HQLA). These can also serve as collateral for Islamic repo. In 2023 and 2022, UAE federal government and the Qatar Central Bank started issuing local-currency Treasury sukuk for the first time. Government sukuk are also available in Saudi Arabia, Malaysia, Bahrain, Indonesia, Türkiye, Bangladesh, Pakistan, Oman, and Nigeria. However, regulatory hurdles are causing unavailability in some markets. In Kuwait, the lack of public debt law prevents the government from issuing sukuk or bonds. In some markets, government sukuk are issued in lower volumes than bonds.

While government sukuk could qualify as HQLA, its liquidity features are constrained by the buy-and-hold nature of Islamic investors stemming from limited sukuk supply in both the primary and secondary markets. In contrast, sukuk liquidity is generally good when issuers or investors seek to sell it. Sukuk that are not AAOIFI-compliant could be less liquid as UAE Islamic banks are constrained from investing in them. If the “tangibility event” in sukuk is triggered, the sukuk would be delisted from the relevant exchange, affecting its liquidity.

While sukuk are generally issued with medium-to-long tenors, we do not see enough short-term government sukuk in both local and hard currencies. Short-term government sukuk are not present in the UAE, Saudi Arabia, Kuwait, Oman, Jordan, Nigeria, and Egypt. However, these are issued in Malaysia, Türkiye, Indonesia, Bahrain, Bangladesh, Brunei, Gambia, and by the supranational, the International Islamic Liquidity Management Corporation.

Islamic banks’ usage of Islamic repos and its harmonisation is generally low due to lack of standardisation and differences of opinions in terms of sharia-compliance. In Malaysia, which has one of the most advanced Islamic finance ecosystems, the Islamic repo market is far less developed than the conventional repo market with only around 1% of the total Islamic money market volume.

In the GCC and a number of other markets, Fitch expects Islamic banks to maintain solid liquidity in 2024-2025. As part of Fitch’s assessment of an Islamic bank’s Viability Rating, weak access to liquidity due to shallow markets or regulatory policies is likely to have a negative impact on Fitch’s assessment of a bank’s funding and liquidity.

IBS Intelligence