Qatar Shariah sector holds its own among Gulf heavyweights

• Qatar Islamic assets grew 4% in 2024 amid efforts to diversify economy
• GCC’s fifth largest market by Shariah funds AuM
• Supportive central bank and other regulatory action poised to catalyze further growth

Overview

In Qatar, an economic transformation is underway to position an Islamic finance sector – alongside oil and gas riches – in one of the world’s wealthiest nations.

Long fueled by vast energy reserves, this nation of less than three million people is steadily building a Shariah compliant financial hub to rival Gulf powerhouses such as Saudi Arabia, Kuwait and the UAE.

Oil and natural gas form the cornerstone of the economy, accounting for a significant portion of government revenue and GDP. Qatar possesses the world's third-largest proven natural gas reserves, making it a leading exporter of liquefied natural gas (LNG). Despite that, the Qataris, like their more illustrious neighbors, are working to reduce their reliance on hydrocarbons and foster a diversified, knowledge-based economy.

Those efforts at diversification are already telling a compelling story of the Shariah landscape: Domestic Islamic finance assets grew 4.1% year-on-year in 2024, reaching QAR683 billion (US$187.5 billion), according to Bait Al Mashura Financial Consulting.

Asset spread

The IFN Investor Funds Database tracks eight Islamic funds worth US$516.3 million in Qatar, from a Middle East total of 425 funds valued at US$61.67 billion.

That makes the country the region’s fifth largest base for Islamic assets in the GCC region - after Saudi Arabia (317 funds, US$51.75 billion), Kuwait (34 funds, US$4.27 billion), UAE (51 funds, US$4.04 billion) and Bahrain (seven funds, US$703.29 million).

Chart 1: Middle East Islamic assets by country

A closer look into Qatar’s funds sector reveal that equities lead the pack, representing US$288.05 million across five funds. Sukuk funds follow with US$146.36 million from two funds, and fixed income instruments contribute US$81.89 million from a single fund.

Chart 2: Qatar’s Islamic assets by fund count, asset class

Two fund managers – Al Rayan Investment and The First Investor run the five largest Islamic funds in the country.

The equities-based Al Rayan Qatar ETF is the biggest, commanding an AuM of US$126.84 million. It is followed by The First Investor’s BB Global Sukuk Income Fund (US$123.19), the equities-themed Ali Rayan GCC Fund (US$113.32 million), the BB Money Market Fund SP for fixed income (US$81.89 million) and the equities-driven BB Global Islamic Thematic Opportunities (US$42.3 million).

Table 1: Qatar’s top Islamic funds, by AuM

Equity funds have thus shown a strong performance this year. The First Investor’s BB Global Islamic Thematic Opportunities topped gains with a year-to-date return of 10.65%. The fund manager also took second and third placement, respectively, with gains for the BB Global Sukuk Income Fund (2.07%) and BB Money Market SP (2.02%).

QNB Suisse filled out the fourth and fifth positions, respectively, with QNB Global Sukuk Fund (1.98%) and Al Watani Fund (1.49%).

Table 2: Qatar’s top Islamic funds, by returns

Regulatory network

Qatar has taken a proactive role in shaping its Islamic finance landscape under the supervision of its central bank. A pivotal moment came in 2012 when conventional banks were barred from offering Islamic products by the Qatar Central Bank (QCB), forcing them to transfer these to dedicated Islamic institutions. This move has helped create a well-defined and stable market.

Looking ahead, the QCB's Third Financial Sector Strategic Plan for 2024-2030 aims to foster innovation in Islamic financial products and increase public awareness. In another forward-thinking move, the Qatar Financial Centre envisioned a digital asset framework to enable the tokenization of various real-world assets, from securities to Sukuk, to solidify the Gulf state’s push to become a premier financial and business hub.

Outlook

While Qatar’s Islamic equities market faced some headwind from the country's massive infrastructural spending, particularly on LNG projects, this has created a unique opening for savvy investors.

With plans to nearly double its annual LNG output to 142 million tons by 2030, Qatar is poised for explosive growth. This push, along with other major projects, is projected to boost Qatar’s GDP by 50-60% by the end of the decade, creating what some see as a golden opportunity to invest in equities currently valued at multi-year lows.

With a supportive regulatory environment, strong growth and strategic investments, Qatar's Islamic finance market is primed for continued expansion. The nation’s focus on infrastructure is not a roadblock but a launchpad, setting the stage for significant GDP growth and creating a compelling case for investors to consider.

As the QCB’s strategic plan and the QFC’s digital initiatives take hold, Qatar is poised to further cement its position as a global leader in Islamic finance.