MENA sukuk market flourishes in H1, fuelled by ESG, sovereign issuances

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The Middle East and North Africa (MENA) market for sukuk has shown significant growth in the first half of 2024, while the Islamic loan market experienced a downturn, according to Bloomberg’s Capital Markets League Tables.

Bloomberg’s league tables provide comprehensive and timely information on capital markets representation.

This expansion in sukuk has been fuelled primarily by environmental, social, and governance (ESG) initiatives and sovereign issuances, highlighting issuers’ efforts to diversify their funding sources and capitalise on the growing interest in Islamic finance.

Volumes for ESG-related sukuk, designated for green and social projects, surged by 48 per cent year-on-year in the first six months of 2024, reaching $6.2bn from eight issuances.

Kingdom is the lead issuer of sukuk in the region

Saudi Arabia emerged as the leading issuer, accounting for $3.98bn from five sukuk, while the UAE contributed the remaining $2.25bn.

Regional banks played a pivotal role in this growth, with a notable debut issuance from Emirates Islamic Bank totalling $750m.

This positive trend underscores the region’s commitment to ESG investing, especially in light of significant climate finance announcements made by the UAE during COP28 last year.

Conversely, the Islamic loan market lagged behind the bond issuance uptick in the first half of 2024, despite offering competitive rates and terms compared to conventional loans. Islamic loan volumes in the MENA region hovered around $13.35bn in H1, marking a 21 per cent year-on-year decrease and reflecting the subdued activity levels seen in the bond market since the pandemic.

Global sovereigns have been key drivers in the sector during the first half of the year, with Saudi Arabia issuing $33.6bn in both local and international capital markets, followed by Malaysia at $4.3bn, and the UAE at $2.9bn.

These transactions included Saudi Arabia’s $5bn sukuk, split across three-, six-, and 10-year tranches, and Bahrain’s $1bn seven-year sukuk.

Venty Mulani, data specialist – Sustainable Fixed Income at Bloomberg LP, commented: “The continued expansion of MENA Islamic debt issuances aligns with broader trends in the fixed income space while pointing to increased issuer interest in sustainable debt and an appetite to diversify portfolios.

In the second half of the year, we can expect to see continued growth, particularly for ESG-related Sukuk, reflecting a deepening commitment to sustainable finance in the MENA region.”