Kuala Lumpur: Demand for Islamic finance is set to rise, driven by robust economic activity in the Gulf Cooperation Council (GCC) and Southeast Asia, fueled by diversification agendas, investment inflows, and population growth.
According to BERNAMA News Agency, the demand for Islamic finance will remain strong in 2025, supported by sustained economic momentum and ambitious development plans in key Islamic markets. The rating agency anticipates that while the appetite for Islamic finance will be vigorous, sukuk issuance volumes are expected to decline. This is attributed to the higher financing needs of Indonesian and Turkish sovereigns being mostly balanced by reduced sovereign issuance from Saudi Arabia and Malaysia. Additionally, the issuance of Islamic bonds by financial institutions and companies is likely to stay robust.
Moody’s forecasts that sukuk issuance will decrease to approximately US$210 billion-US$220 billion (US$1=RM4.45) this year, mainly due to lower sovereign issuance, as there are reduced sukuk refinancing needs and an expectation that Saudi Arabia’s liability management operation will not be repeated in 2025. Financial institutions and corporate sectors are expected to partially offset this decline, benefiting from lower interest rates and anticipated rate cuts.
The rating agency also highlights the growth potential for green and sustainable sukuk, despite a 10.6 percent decline in issuance to US$9.5 billion in 2024. It expects issuance levels to remain stable in 2025, supported by issuers’ continued commitment to environmental, social, and governance agendas, as well as growing interest from both domestic and international investors.
Moody’s also notes that the demand for Islamic investment funds remains solid, with the takaful sector likely to experience consolidation. Takaful premiums are projected to grow moderately over the next two to three years, underpinned by economic expansion and increasing demand for medical insurance and other compulsory products. The sector is expected to see mergers and acquisitions driven by competition, rising climate risk, digitalization, and regulatory improvements.