ESG and sovereign issuances drive expansion o f MENA fixed income market inH1

The Middle East and North Africa (MENA) market for Sukuk has continued to expand in the first six months of 2024, while the Islamic loan market has seen a decline, according to data from Bloomberg’s Capital Markets League Tables. Growth in Sukuk has been primarily driven by ESG-related and sovereign issuances, reflecting issuer initiatives to broaden their funding base and capitalise on increasing investor interest in Islamic finance portfolios.
Volumes for ESG-related Sukuk, where funding is allocated to green and social projects, increased by 48% year-on-year in the first six months of 2024 to reach $6.2 billion from 8 issuances. Saudi Arabia was the leading issuer, accounting for $3.98 billion from five Sukuk, with the UAE representing the remaining $2.25 billion. 
The region’s banks were the driver, with a notable debut issuance from Emirates Islamic Bank ($750MM). The positive trend reflects the commitment of Islamic finance in the region to ESG investing, in relation to the significant climate finance announcements made by the UAE during COP28 last year.
The Islamic loan market, however, has lagged behind the uptick in bond issuance during the first half of 2024, despite offering competitive rates and terms, compared to conventional loans. Islamic loan volumes in the MENA region floated around $13.35 billion in H1 2024, a 21% year-on-year decrease, reflecting the level of activity seen in the bond market since the pandemic. 
Global sovereigns have driven the sector in the first half of the year, with Saudi Arabia issuing $33.6 billion in the local and international capital markets, followed by Malaysia issuing $4.3 billion, and the UAE issuing $2.9 billion. Noteworthy transactions including Saudi Arabia $5 billion Sukuk transaction split across 3-, 6- and 10-year tranches and Bahrain $1 billion 7 year Sukuk.

Venty Mulani, Data Specialist - Sustainable Fixed Income, Bloomberg LP, said: “The continued expansion of MENA Islamic debt issuances aligns with broader trends in the fixed income space while pointing to increased issuer interest in sustainable debt and an appetite to diversify portfolios. In the second half of the year, we can expect to see continued growth, particularly for ESG-related Sukuk, reflecting a deepening commitment to sustainable finance in the MENA region.”

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