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The United Arab Emirates ranks fourth among the world’s largest Islamic financial markets

The Central Bank of the United Arab Emirates (CBUAE) has revealed that the main Islamic financial markets are located in the Gulf Cooperation Council (GCC), Southeast Asia and South Asia.

The UAE is the fourth largest Islamic financial market in the world (in terms of assets) according to the Islamic Finance Development Indicator 2023 (IFDI 2023) report.

He CBUAE he said in his UAE Islamic Finance Report 2023 that the Islamic finance sector grew by 11 percent in 2022, raising the value of global Islamic financial assets to 16.5 trillion dirhams (4.5 trillion US dollars). The sector has achieved a 69 percent increase in five years and a 163 percent increase in the last 10 years.

The report explains that Islamic finance has developed in the UAE since the establishment of the first Islamic bank in 1975 across various sectors, including Islamic banking, takaful insurance and sukuk. Islamic finance has become an integral part of the financial sector in the UAE due to the presence of a robust regulatory environment that balances regulatory and legal requirements with the provisions of Islamic law.

He CBUAE He said the assets of Islamic banks and conventional bank windows currently account for 23 per cent of total banking assets in the UAE, after achieving 16 per cent growth in the last five years. The sukuk market is also experiencing expansion in the UAE as the federal government recently issued Islamic treasury sukuk in UAE dirham, which could be a catalyst for other entities to issue Islamic sukuk.

The report states that Islamic finance in the UAE has in recent years focused more on initiatives related to the harmonization and calibration of Shari’ah requirements with the aim of promoting the stability and growth of Islamic finance and provide an enabling environment for the development of innovative products and services. Federal Law Decree No. (50) of 2022 on the issuance of the Commercial Transactions Law represents one of the main pillars that support the prosperity of Islamic finance and the trend towards greater legal certainty in its transactions and activities to consolidate trust between all relevant parties.

The report noted that the Islamic finance sector has played an important and growing role in the field of sustainability globally due to the high compatibility and integration between the requirements of Islamic law and the aspirations of the Sustainable Development Goals.

The report states that the rapid growth rate of ESG-related sukuk issuances is one of the indicators of the rapid development of sustainable Islamic finance, with total issuances set to reach AED 120.3 billion in the first half of 2023.

The report noted that sustainable finance has seen rapid growth in the UAE since the issuance of the country’s first green sukuk in 2019, whether through Islamic capital markets or Islamic finance. ESG sukuk issuances maturing in the UAE accounted for 15 percent of global ESG sukuk.

The report indicates that the central bank’s initiatives on sustainability and sustainable finance have included the integration of sustainability standards in reserve management, supporting digital transformation in the financial system, internal transition towards sustainability, realizing of stress testing for climate-related risks and the start of monitoring of climate-related risks. financial risks, meticulous monitoring of sustainability standards in the financial sector, launching principles for effective management of climate-related financial risks and developing the sustainable Islamic financial sector.

The report clarified that the Higher Sharia Authority The central bank has encouraged Islamic financial institutions to play an active role in sustainable finance by taking a balanced approach to its environmental and social aspects. In 2023, he published guiding principles on sustainable Islamic finance, emphasizing Shari’ah principles and jurisprudential methodology to incorporate sustainability in Islamic finance. He also noted that sustainability considerations fall within the Shari’ah responsibilities of individual ownership, balancing individual interest with the public interest, which includes the environment and society.

The report highlighted that the Higher Sharia Authority introduced 10 requirements and recommendations for sustainable Islamic finance. The central bank and the council continue to collaborate with the country’s Islamic financial institutions to develop this field.

A survey of the UAE Islamic banking sector, covering local and foreign Islamic banks and Islamic banking windows of conventional banks, revealed that 79 percent have a sustainability strategy, while 74 percent reported that their strategy has been approved at board level.

All Islamic banks said they have sustainability strategies, however this was not the case for conventional banks with Islamic windows, where some strategies were in development or waiting to be formalized for publication next year.

News source: Emirates News Agency

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