Key Highlights
- IFN investor database reports US$3.78 billion in Islamic assets under management in the UAE
- Regulators include the Central Bank of UAE, the Securities and Commodities Authority and Dubai Financial Services Authority
- New principle on sustainable financing announced by the Higher Shariah Authority in 2023
Overview
The UAE has been at the forefront of the Islamic finance industry due to its economy being less reliant on energy as its neighbouring countries. Having developed a strong financial sector, the UAE is the fourth largest Islamic finance market globally – with Shariah compliant banks and asset managers plus Takaful companies operating in tandem with conventional institutions.
The Islamic financial sector has exhibited higher growth than its conventional counterpart, coupled with wider availability of Islamic liquidity instruments than in most other countries. The banking sector health ratings was recently upgraded to bbb+ by Fitch, which reflects the beneficial economic environment.
As of 2023, total Islamic assets under management (AuM) in the UAE were valued at approximately US$3.78 billion according to the IFN Investor Funds Database.
Regulatory framework
Islamic finance in the UAE operates under a robust regulatory framework. The UAE’s key authoritative figure is the Central Bank of UAE (CBUAE). The Higher Shariah Authority (HSA) is established by the CBUAE, where members are appointed by the UAE Cabinet.
In 2018, the HSA was mandated as the body to set rules, principles and standards applicable to the Shariah compliant business and licensed financial bodies. The HSA also approves the Islamic monetary and financial tools developed by the CBUAE to manage monetary policy operations and activities in its jurisdiction.
The Dubai Financial Services Authority (DFSA) supports the Islamic finance and investment industry in the UAE by regulating financial services within the Dubai International Financial Centre (DIFC). It develops policies, supervises institutions, enforces compliance, and manages risks to ensure a stable and transparent financial environment.
Using a risk-based approach, the DFSA focuses on addressing key challenges while minimizing unnecessary regulatory burdens. It also collaborates with local and international regulators to share information and uphold global standards, helping to position the UAE as a leader in Islamic finance.
The Securities and Commodities Authority (SCA) in the UAE supports the Islamic investment space by regulating Shariah compliant products like Sukuk and Islamic funds, ensuring transparency and ethical standards. It fosters market growth and aligns UAE practices with global Islamic finance standards.
In 2023, the HSA issued new guiding principles on the application of sustainability within Islamic finance institutions. The document underlines the responsibilities for action on environment and social matters within the requirements assigned to ownership of property rights.
The HSA has also issued guidance addressing critical areas affecting Islamic financial institutions, including Shariah considerations for Sukuk, syndicated financing and repo transactions. Additionally, it has provided direction on innovative financial products and services offered by Islamic institutions and offered specific guidance on the transition from LIBOR to risk-free rates.
The CBUAE has introduced a risk management standard for Islamic banks to enhance the prudential framework of Islamic finance, addressing areas not covered in its other regulations. This standard outlines the various risks inherent in the operations of Islamic banks, including displaced commercial risk, rate of return risk and Shariah non-compliance risk.
Capital market
According to the CBUAE, the Islamic finance sector growth in the UAE achieved a 69% increase in the past five years and a 163% increase over the past 10 years. Sukuk market growth is driven with the federal government issuing local currency-denominated Sukuk.
UAE’s capital market is overseen by two bodies, namely the SCA and the DFSA. DFSA authorizes and issues licenses for financial institutions, auditors and credit rating agencies.
The DFSA regulatory mandate includes asset management, banking, credit, investments, collective investment schemes, clearing houses which is also referred to as an authorised market institution and other financial entities which operate in the DIFC, a financial free zone in Dubai.
Guidelines for entities interested in becoming a fund manager or take part in offering asset management services are clear and a DFSA license is required after meeting DFSA’s requirements in terms of management infrastructure and key personnel integrity criteria.
Asset management
The IFN Investor Funds Database tracks 394 Islamic funds in the Middle East with a current value of US$48.37 billion. The UAE holds 7.87% of the total Islamic funds by value, making it the second largest country to house Islamic funds in the Middle East.
Chart 1: Islamic fund breakdown by country in the Middle East
The UAE hosts 48 Islamic funds with a total AuM of $3.78 billion, distributed across various asset classes. Sukuk funds lead the market, representing 29.52% of the total AuM at US$1.11 billion. Real estate funds rank second with US$1.10 billion (29.03%), followed by money market funds at US$574.64 million (15.19%). Equity funds account for 13.72% of the AuM, totaling US$518.90 million. Islamic mixed asset and fixed income funds amount to US$268.75 million (7.10%) and US$205.81 million (5.44%) respectively.
Chart 2: Islamic fund breakdown by asset class in the UAE
The IFN Investor Fund Database reports 16 asset managers in the UAE. The largest asset manager in terms of funds AuM is the Emirates NBD Asset Management managing nine funds with a total value of US$1.59 billion.
Chart 3: Largest fund managers by AuM in the UAE
Table 1: Top performing Islamic funds in the UAE by one-year returns
| Fund | Fund manager | One-year returns (%) |
| Chimera S&P US Shariah Growth ETF – Accumulating | Lunate Capital | 39.87% |
| Global Sharia REITS Portfolio | Invesense Asset Management | 32.90% |
| Chimera S&P China HK Shariah ETF – Income | Lunate Capital | 25.50% |
| Emirates India Equity Fund | Emirates NBD Asset Management Ltd. | 24.00% |
| SHUAA North American Equity Fund | SHUAA Capital | 20.10% |
Outlook
The outlook for Islamic finance in the UAE remains positive, driven by the strong performance of the non-oil economy. The country has witnessed notable growth in foreign currency Sukuk issuances, particularly in the real estate and financial sectors, as part of efforts to attract foreign capital.
A report by S&P Global projected that the UAE and Saudi Arabia have emerged as key markets for sustainable Sukuk issuance, with their market shares projected to grow by 25-30% by 2025 due to strong regional demand.
Additionally, the DIFC has identified new funding opportunities to promote sustainable finance, aligning with the UAE’s goals for carbon neutrality. Supporting this, HSA has introduced 10 guidelines and recommendations to advance sustainable Islamic finance in the region.
Improvement on regulations and mandates remains a key part of the Islamic financial sector and these continue to strengthen UAE’s position as a promising Islamic investment hub. Foreign currency Sukuk issuance in the financial institutions and real estate sector continues to be favourable, the UAE’s Takaful sector is also projected to expand further in the ballpark of 15% to 20%.
