The United Arab Emirates (UAE) has firmly established itself as a global hub for Islamic finance over the past five decades, transforming the region’s financial landscape and contributing significantly to the global Shariah-compliant financial sector. With assets in Islamic finance surpassing $2.44 trillion globally and an 11.4% annual growth rate, the UAE’s journey reflects a blend of innovation, resilience, and forward-looking policy.
The foundations of the UAE’s Islamic finance industry were laid in 1975 with the launch of Dubai Islamic Bank—the world’s first Islamic bank. This marked a historic shift, demonstrating that a banking system could thrive while adhering to Islamic principles, including the prohibition of interest-based transactions and a focus on ethical investing.
Following this milestone, the 1980s and 1990s saw a surge in the establishment of Shariah-compliant institutions, such as Abu Dhabi Islamic Bank and Sharjah Islamic Bank. Government support through policies, regulatory frameworks, and the formation of oversight bodies like the Central Bank of the UAE and the Higher Shariah Authority played a key role in ensuring sustainable growth and product standardisation.
The 2004 establishment of the Dubai International Financial Centre (DIFC) provided further momentum, offering a global platform for Islamic finance underpinned by international best practices and robust regulations.
Today, the UAE boasts a comprehensive Islamic finance ecosystem, including full-fledged Islamic banks, Islamic windows of conventional banks, takaful (Islamic insurance) providers, and Islamic finance companies. The country has ranked consistently among the top three Islamic economies globally, as per the State of the Global Islamic Economy Report, and fourth in Islamic financial markets by assets, according to the 2023 Islamic Finance Development Indicator.
According to recent data from the Central Bank of the UAE, Islamic banks now account for around 22% of the country’s total banking credit, with investments reaching Dh152.3 billion by the third quarter of 2024. Moreover, 79% of Islamic banks have implemented sustainability strategies, reflecting growing alignment with ESG principles.
Fitch Ratings and S&P Global Ratings both project strong growth for the sector, citing favorable economic conditions, strong liquidity, and the expansion of the non-oil economy. Islamic financing now constitutes 29% of total sector financing, outpacing conventional banks in growth.
Beyond banking, the UAE has emerged as a powerhouse in the sukuk (Islamic bond) and takaful sectors. The country launched its first takaful company in 1979 and has since become a leading global issuer of sukuk, holding 6.6% of the world market. Green sukuk and sustainability-focused issuances are also on the rise, with Nasdaq Dubai reporting $98.9 billion in listed sukuk by the end of 2024.
With ethical and sustainable finance gaining global traction, the UAE’s Islamic finance sector is well-positioned to lead the next phase of growth, reinforcing the country’s status as a beacon for responsible and inclusive financial systems.
