Saudi Arabia strengthens position world’s biggest Islamic finance market: Moody’s

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Saudi Arabia has strengthened its position as the world’s largest market for Islamic finance, with total assets of $339 billion as of March 2020, credit rating agency Moody’s said on Tuesday.

The Kingdom’s Islamic finance assets are over double that of Malaysia, the second biggest market, according to the Moody’s report.


Moody’s also suggested that the Kingdom’s lead in the field will continue to grow, with corporates and households set to increasingly move to Islamic finance over conventional products in the next 12-18 months.

Islamic finance will grow to around 80 percent of all loans in the Kingdom over this period, up from 78 percent in 2019, and 70 percent in 2013. In particular, sukuk, a Sharia-compliant bond, has since issuance skyrocket.

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“A comprehensive set of Islamic finance regulations have spurred Saudi banks to issue sukuk, Islamic products are now listed on the main market, and an Islamic mortgage refinancing business has been established,” Ashraf Madani, a VP-senior analyst at Moody’s said in a statement.

On September 17, Saudi Arabia’s government completed its regular monthly issuance of riyal-denominated sukuk, bringing the total sukuk issued this year to 84 billion riyals ($22.4 billion).

The issuance of sukuk so far this year represents a massive increase over 2019, with issuance 45 percent higher than in the same period in 2019, Moody’s said in a separate note on Tuesday.

“Over the past three years, the government has developed (from scratch) a well-functioning and increasingly deeper domestic sukuk market that has allowed it tap into growing domestic and international demand for Sharia-compliant fixed income assets,” the agency said.

The government of Saudi Arabia has also become the biggest sovereign issuer of long-term sukuk in the world over the same period, surpassing Malaysia and Indonesia, both leading sukuk issuers for more than a decade, Moody’s added.

The agency pointed to the Kingdom’s cultural acceptance of Sharia-compliant products as likely spurring further growth in Islamic finance.

“A wave of mergers and acquisitions in Saudi and across the wider Gulf region is accelerating Islamic finance penetration,” Moody’s said.

“The industry will further benefit from increased government sukuk (Islamic bond) issuance, potentially rising foreign investment supported by more lenient entry rules, deepening capital markets and a new wave of mergers,” the ratings agency added.

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