The global financial landscape in 2025 was defined by complexity. Deepening geopolitical tensions and pervasive macroeconomic volatility compelled institutional investors worldwide to adapt varying strategies.
With the Trump administration continuing to roil global trade with unprecedented tariffs, policymakers sought to delicately balance slowing growth with rising inflation.
Investment funds, meanwhile, relied on an array of tools to hedge against the uncertainty of international capital flows while mining for opportunity in the digital economy of the future.
The GCC to Europe and Asia saw an epic jump in real estate and REIT activity as the property sector remained one of the most bankable and purest paths to alpha in the Shariah world.
Islamic commodity funds practically shone from the record highs in gold. Strategies leveraging blockchain and AI fostered hope in new, tokenized returns.
Sukuk, the bedrock of the Islamic capital market, retained its supremacy as the total global value of all its past and present issuances surpassing US$1 trillion in the first half of 2025.
And in a tariff-changing landscape where few assets were safe, Shariah equities – shielded from the speculative excesses of conventional markets – provided commensurate returns to key global indices. The S&P Global BMI Shariah index, for instance, is up almost 16% for the year, matching the S&P 500.
The year-on-year surge in valuations of Islamic funds tell the rest of the story.
The sheer number of funds in the Islamic universe tracked by the IFN Investor Funds Database itself were little changed, at 2,615 in the week ended December 1 from 2,494 at end-2024.
But their AuM rose by a dramatic 65% to US$755.66 billion from US$456.56 in the same period, speaking to the industry’s remarkable success in navigating the geopolitical and macroeconomic storms of 2025.
A year that went from lows to highs
A central theme defining investment strategies in 2025 has been adaptation to the new macroeconomic reality.
After years of ultra-low rates, global central banks have anchored the world in a period of sustained higher borrowing costs.
Geopolitical instability – from persistent regional conflicts to global trade upheavals – added to the friction.
Despite the turbulent backdrop, the Islamic fund and investment management sector demonstrated laudable resilience.
Shariah investors not only adapted to the prevailing high-rate, high-inflation environment but also positioned for strategic growth, driven by regional dynamism, a focus on tangible assets, including asset-backed and equity-based Shariah structures as well as unwavering commitment to ethical, profit-driven mandates.
Some said progress would have come at a greater pace if more Muslims realized there were enough Shariah products in the market for almost all their needs. Conventional finance was “fundamentally exploitative”, said Anouar Adham, founder of UK-based Shariah investment company Bayuti. “We need to replace the entire system with one grounded in tangible assets and genuine partnership.”
More Muslims would also prosper if those who owned private capital were not “so reluctant, so hesitant and so afraid” to pool their money, said Dr Main Alqudah of the Resident Fatwa Committee of the Muslim Jurists Association of America. The overt caution of Muslim money managers often left funds “just sitting back”, Dr Main observed.
Biggest asset classes
The investment focus among Islamic institutional investors has clearly gravitated toward PE and other choice asset classes.
The lure of PE
In a world where public equities are volatile and fixed income yields are constantly recalibrating, Islamic PE and Shariah compliant private credit have emerged as the top asset classes of interest. These sectors offer institutional investors the potential for higher alpha generation, greater control and the ability to structure bespoke, asset-backed deals that align perfectly with Shariah requirements.
The shift reflects a global trend toward private markets, but in Islamic finance, it is magnified by the structural integrity and risk-sharing nature of Mudarabah and Musharakah structures that underpin many PE deals.
Fintech, AI revolution
The digital transformation is poised to reshape the Islamic investment landscape, moving the industry toward higher efficiency and broader access.
Wider adoption of online platforms: The rise of Islamic neobanks and digital wallets is making Shariah compliant services instantly accessible to a younger, tech-savvy demographic.
AI and automation: AI is increasingly being deployed to streamline back-office operations, enhance risk mitigation, and, crucially, assist in real-time Shariah compliance screening and personalized ethical investing recommendations. AI-powered algorithms can monitor investment activities, ensuring compatibility with religious convictions and financial objectives, leading to lower costs and greater transparency.
Blockchain exploration: While the sector remains highly cautious about decentralized cryptocurrencies – with only a handful of certified Shariah compliant crypto funds – blockchain and distributed ledger technology are actively being explored for controlled applications like asset tracking and tokenized Sukuk, promising greater efficiency in capital markets.
Property, REITs, crowdfunded and tokenized real estate
The property market was one of the biggest Shariah plays of the year, particularly in the area of REITs.
The GCC REIT market was valued at US$17.42 billion in 2025 and projected to expand at a 7.06% compounded annual growth rate through 2030, anchored by Saudi Arabia, which holds over 58% of the REIT market share, according to Mordor Intelligence.
In the UAE, four Shariah funds hold a staggering US$5.57 billion – or roughly 87% of the assets of the Emirates’ entire real estate sector. Of these, one fund – the Dubai Residential REIT – alone holds over US$4 billion in AuM.
Innovations have also broken ground in real estate, to democratize home and other property ownership for the average person.
The first US-based Shariah compliant real estate crowdfunding platform was launched in November by EdificeX through a customized blockchain.
UK-based Bayuti’s CrowdToLive model, meanwhile, co-owns homes with buyers, allowing them to occupy the property and pay an affordable rent while buying back the equity incrementally, without having to incur any interest.
Commodities and gold
As gold prices went on a record-making spree in October, Shariah compliant funds focused on the precious metal had a bonanza in returns. The SPDR Gold Shares ETF, the world’s largest gold exchange-traded fund with 100% of its assets backed by physical gold bullion, registered a colossal US$129.96 billion in AuM while its smaller counterpart, the SPDR Gold MiniShares Trust, followed in second place with US$22.22 billion.
The power of Sukuk
Driven by favorable financing conditions and surging demand from both corporate and sovereign issuers, Sukuk issuances for 2025 were forecast to total between US$190 billion and US$200 billion, a step up from the US$193.4 billion in 2024, according to S&P Global Ratings.
The rapid growth underpins the stability of Islamic investment funds, many of which utilize Sukuk as their primary fixed income equivalent.
While not a decline in the Islamic sector itself, a significant divergence has emerged: Islamic investors are not dissociating from the ESG movement, despite conventional peers in the West witnessing outflows from ESG-related funds due to rising anti-ESG political sentiment.
The Islamic investment community’s commitment to sustainability remains robust, as it is driven by religious obligation and altruism, not merely a conventional investment fad. However, there has been a significant decline in the adoption of purely conventional ESG labels in favor of emphasizing the inherent ethicality of Shariah compliant investment.
The global outstanding value of ESG Sukuk is expected to surpass US$50 billion in 2025, up 23% from the US$45.2 billion outstanding in 2024, according to Fitch Ratings.
Regions that matter
GCC: Shariah’s omnipotent base
The GCC remains the single largest engine of growth and yield appreciation for Islamic fund managers globally. The region is ripe with opportunities in the preferred asset classes: infrastructure, real estate, Islamic PE and private credit, due largely to four key factors:
- Insulation: The region has been largely insulated from the immediate threats of trade tariffs and external demand uncertainty plaguing other economies.
- Resilience: The GCC has proven resilient to regional geopolitics, maintaining robust economic activity.
- Diversification mandates: Saudi Arabia’s Vision 2030 and similar national transformation strategies in the UAE and Qatar are injecting massive foreign direct investment and fostering economic diversification away from hydrocarbons. Economists are forecasting GCC GDP growth to reach 4% to 4.7% in 2025, significantly outpacing the projected 2.5% global average.
- Energy and renewables: A key beneficiary, aligning with both the GCC’s diversification efforts and the global ESG movement.
Tried-and-tested Southeast Asia
The Southeast Asian region, driven by Malaysia and Indonesia, remains a top three favored Islamic investment destination, primarily due to its position as one of the world’s most prolific Sukuk issuers and a provider of high-quality, actively-managed Islamic funds.
Islamic finance assets account for nearly 46% of Malaysia’s total domestic banking system financing. The depth of its capital markets is demonstrated by its equity offerings: the Securities Commission Malaysia lists over 820 Shariah compliant companies, which is almost 80% of all listed securities on Bursa Malaysia, providing an unparalleled universe for Islamic fund managers.
Indonesia is, meanwhile, recognized as the largest sovereign Sukuk issuer on the Nasdaq Dubai exchange, with its outstanding listings reaching US$24.05 billion across 21 issuances as of late 2025.
The European trinity: UK, Ireland and Turkiye
The European trinity of the UK, Ireland and Turkiye retained their major influence in the Shariah world in 2025.
The UK saw the first public Shariah compliant Residential Mortgage-Backed Security issuance by a non-bank lender since 2018.
Ireland’s Euronext Green Bonds platform attracted increasing attention from Islamic fund issuers looking to target a European investor base with green Sukuk and other sustainable
Shariah compliant products.
Turkiye unveiled a US$4 billion Islamic finance initiative for energy independence, led by its state energy company, which prepared for the largest-ever Islamic finance initiative in the nation’s energy sector.
Anticipating the future: 2026 and beyond
PE bottleneck
Following the jump in interest in PE and credit, the key challenge in 2026 will be structuring capacity. The industry will need more sophisticated legal and Shariah advisory firms capable of handling the complex Mudarabah and Musharakah structures at scale. New funds will increasingly be structured to pool private capital that is currently “sitting back,” addressing the hesitation noted by some practitioners.
Fintech maturation
The projected market size of the global Islamic fintech market surpassing US$300 billion by 2027 will spur mergers and acquisitions. Islamic banks and large asset managers will look to acquire innovative neobanks and digital wallet platforms to instantly access the younger, tech-savvy demographic that is driving new asset growth.
Tokenization as an ever-bigger solution
The success of platforms like EdificeX and Bayuti’s CrowdToLive model will cement tokenization as the primary solution for the liquidity issue in real estate and other tangible assets. Tokenized Sukuk and asset-backed real estate will transition from pilot projects to routine instruments in capital markets, providing fund managers with securitized, liquid investment options.
