Saudi Arabia to Drive Global Islamic Finance Growth in 2025, Says S&P Global

Saudi Arabia is set to play a leading role in driving the growth of the global Islamic finance industry in 2025, underpinned by robust economic diversification, strong sukuk issuance, and sustained expansion of its banking sector, according to a new report by S&P Global Ratings.

The agency’s latest outlook highlights that Saudi Arabia’s Vision 2030 strategy is fueling growth across its banking system, which in turn is contributing to the continued rise of Islamic banking assets. S&P noted that the expansion is expected to remain resilient, supported by a steady flow of sukuk (Islamic bonds) and investor confidence, barring major disruptions such as global trade tensions or a sharp drop in oil prices.

In the first quarter of 2025, Saudi Arabia led the Gulf Cooperation Council (GCC) in primary bond and sukuk issuances, raising $31.01 billion from 41 offerings. This accounted for over 60 percent of total issuances across the region, according to data from Kuwait Financial Center (Markaz).

The report also forecasts global sukuk issuance to reach between $190 billion and $200 billion in 2025, with $70 billion to $80 billion expected from foreign currency-denominated issuances. Although total sukuk issuance saw a slight decline in 2024—from $197.8 billion in 2023 to $193.4 billion—it remains on a strong trajectory.

S&P emphasized that Islamic banks are expected to continue outperforming conventional banks in terms of credit growth, particularly in the GCC and Asia-Pacific markets such as Indonesia, Pakistan, and Bangladesh. However, local currency volatility may slightly temper that momentum.

“The financing needs driven by economic transformation programs will remain high, and the inherent preference for Islamic finance will persist,” said Mohamed Damak, head of Islamic Finance at S&P Global Ratings.

In 2024, Islamic finance assets grew by 10.6 percent year-on-year, with banking assets accounting for 60 percent of that growth. The GCC region contributed 81 percent of total industry growth, with Saudi Arabia alone responsible for two-thirds of that.

On the sustainability front, S&P expects sustainable sukuk issuance to range between $10 billion and $12 billion in 2025. This follows $11.9 billion in green and social sukuk issued in 2024, driven by new guidelines from the International Capital Market Association (ICMA) that allow a wider variety of assets to back sukuk linked to environmental and social projects.

However, S&P also pointed to potential challenges ahead, including a possible decline in crude oil prices and regulatory shifts, such as the proposed Shariah Standard 62. If adopted, this could reclassify sukuk instruments from debt-like to equity-like, potentially disrupting the market structure and impacting investor appeal.

Despite these risks, Saudi Arabia is expected to remain a cornerstone of global Islamic finance, supported by its strategic reforms and sustained demand for Shariah-compliant financial instruments.