Why Sukuk Issuance Hit $200B in 2025

Sukuk issuance hit a record $203 billion in 2025, which is a 24 percent jump from 2024 and the third consecutive year of double-digit growth. The industry press treated this as confirmation that sukuk has finally arrived as a global fixed income asset class, and there is some truth to that. But the composition of the 2025 issuance tells a more interesting story than the headline number, and I think the breakdown matters a lot for understanding whether the growth is sustainable.

Let me walk through where the money actually came from, why 2025 was special, and what the trajectory looks like for 2026 and beyond.

The breakdown by issuer type

The $203 billion in 2025 sukuk issuance breaks down roughly as follows based on data from IIFM and the Refinitiv Islamic Finance Development Indicator.

Sovereign issuance was about $92 billion, up from $71 billion in 2024. The top three sovereign issuers were Malaysia ($28 billion), Saudi Arabia ($24 billion), and Indonesia ($18 billion), with the rest distributed among smaller sovereign issuers including the UAE, Turkey, Pakistan, Bahrain, and several African countries. The sovereign issuance was driven primarily by refinancing activity as older sukuk matured, combined with increased spending needs in oil-exporting countries that were facing tighter fiscal conditions.

Quasi-sovereign issuance (government-related entities) was about $54 billion, up from $48 billion in 2024. Major quasi-sovereign issuers included PIF (Saudi Arabia's public investment fund), Malaysia's Khazanah, Dubai's government-related entities, and various infrastructure and development agencies across the Islamic world. Quasi-sovereign issuance is functionally similar to sovereign issuance in most cases, and the two together represent about 72 percent of total sukuk issuance.

Corporate issuance was about $48 billion, up from $32 billion in 2024. This 50 percent jump in corporate issuance is actually the most significant story in the 2025 numbers. It represents a real diversification of the sukuk market away from pure sovereign and quasi-sovereign issuance toward a broader corporate base. The largest corporate issuers in 2025 were in real estate, telecommunications, and financial services, with some notable issuance from manufacturing and consumer companies.

Financial institution issuance was about $9 billion, which is actually down from $11 billion in 2024. This category has been shrinking as a share of total sukuk issuance because conventional bank funding has become more attractive relative to sukuk structures in some markets.

Why 2025 specifically

The jump from $164 billion in 2024 to $203 billion in 2025 is large and needs specific explanation. Here is what I think actually drove the surge.

The biggest single factor was Saudi Arabia's fiscal position. With oil prices hovering around $70 to $80 per barrel through most of 2025 and ambitious Vision 2030 spending commitments still in place, the Saudi government needed to finance a significant fiscal deficit. They did some of this through conventional bond issuance but issued a much larger share through sukuk than they had in previous years. The Saudi sovereign sukuk program grew from about $15 billion in 2023 to $24 billion in 2025. This single factor accounts for roughly a third of the total growth in sovereign sukuk issuance.

The second factor was demand from European institutional investors. European insurance companies and pension funds had been gradually building sukuk exposure as an alternative to low-yielding European sovereign debt. In 2025, this trend accelerated as European investors grew more cautious about fossil fuel issuer credit and looked for alternative emerging market debt exposure. European demand for sukuk roughly doubled in 2025 compared to 2023, which provided buying pressure that supported higher issuance at attractive yields.

The third factor was the launch of new sukuk ETFs in 2024 and 2025, particularly BlackRock's iShares US Sukuk ETF and several European-listed sukuk products. These ETFs created buying pressure for new issuance because the ETFs needed to build their portfolios and could not rely entirely on secondary market purchases. The launch of a $1 billion sukuk ETF creates approximately $1 billion of new demand for sukuk, and that demand has to be met through either secondary market purchases or primary issuance.

The fourth factor was corporate issuers diversifying their funding sources. Several large corporate issuers in the Gulf and Southeast Asia tapped the sukuk market for the first time in 2025 because they wanted to diversify away from relying exclusively on conventional bond markets. Once these issuers went through the process of setting up their sukuk programs, they became recurring issuers, which added to the overall volume.

The geographic expansion

One of the more interesting developments in 2025 was geographic expansion of the sukuk market beyond the traditional core countries. Pakistan issued about $6 billion in sovereign sukuk, which was a big jump from their previous levels. Turkey issued about $5 billion despite ongoing macroeconomic challenges. Egypt issued about $3 billion, which was Egypt's largest sukuk year ever.

Several African countries also issued sukuk for the first time or in meaningfully larger amounts. Nigeria, which has been slowly building its Islamic finance capability, issued $2 billion in sovereign sukuk in 2025. Senegal issued $700 million. Cote d'Ivoire issued $500 million. These are small numbers in absolute terms but represent the beginning of Islamic finance penetration in Sub-Saharan Africa, which has been a long-promised growth area that had not previously delivered much activity.

European sovereigns also increased their sukuk issuance. The UK issued a relatively small sovereign sukuk in 2025 as part of its ongoing commitment to Islamic finance infrastructure. Luxembourg issued a sukuk through a special-purpose vehicle. Germany did not directly issue sovereign sukuk but several German corporates did.

The geographic diversification is healthy because it means the sukuk market is no longer entirely dependent on a handful of Gulf and Southeast Asian issuers. The diversification also provides Muslim investors with more exposure options, which improves portfolio construction flexibility.

Is this sustainable or is 2025 the peak

The most important question about the $203 billion figure is whether it is the beginning of sustained growth or a cyclical peak that will not repeat. My view is that it is probably sustainable but with some caveats.

The bull case for continued growth is straightforward. Sovereign deficits in major Islamic economies are unlikely to shrink meaningfully in the next few years. Vision 2030 infrastructure spending commits Saudi Arabia to significant issuance through 2030. European investor demand is structural rather than cyclical because it reflects a broader search for emerging market fixed income exposure. Corporate issuers who entered the sukuk market in 2024 and 2025 will continue to be recurring issuers. And new ETFs and institutional products will continue to create demand that supports primary issuance.

The bear case is also real. Sukuk issuance is historically sensitive to oil prices because oil revenues affect Gulf government financing needs. If oil prices rise meaningfully above $90 per barrel for an extended period, Gulf sovereign issuance could decline. The interest rate environment also matters. If conventional bond yields remain high relative to sukuk yields, some investors will prefer conventional alternatives. And any serious disruption to Gulf political stability could reduce both supply (as governments pull back on spending) and demand (as investors reprice sovereign credit risk).

My best guess is that 2026 issuance will be in the range of $200 to $220 billion, roughly flat to up modestly from 2025. I do not expect another 24 percent growth year because the specific drivers of 2025 (Saudi fiscal deficit, European demand ramp, new ETF launches) were partially one-time effects that do not fully repeat. But I also do not expect a big decline because the structural factors supporting the market are stable.

For 2027 through 2030, I expect continued growth at a more moderate pace, probably 8 to 12 percent annually. That would put total sukuk outstanding at roughly $2 trillion by the end of the decade, which is a meaningful scale for a global fixed income asset class.

What this means for investors

If you are a halal investor thinking about sukuk allocation in 2026, here is what the supply dynamics tell you.

Supply is abundant enough that you do not need to reach for yield. With $200 billion in annual issuance and plenty of sovereign and corporate names, you can build a diversified sukuk portfolio without concentrating in risky credits. This was not true five or ten years ago when supply was constrained enough that investors sometimes had to accept weaker credits to get exposure.

Duration diversification is improving. The average maturity of new issuance in 2025 was shorter than in previous years, which means you can build intermediate and short-duration sukuk portfolios without being forced into long-duration-only products.

Geographic diversification is real. You can build a sukuk portfolio that includes Gulf, Southeast Asian, Turkish, Pakistani, and African sovereign exposure, which gives you real diversification benefits compared to the Gulf-concentrated sukuk allocation of five years ago.

Pricing is competitive. Yields on Gulf sovereign sukuk in 2025 and 2026 have been roughly comparable to yields on US investment-grade corporate bonds, which means you are not giving up much yield for Shariah compliance. The days when sukuk was significantly cheaper than conventional alternatives are over, but so are the days when it was significantly more expensive.

For a diversified halal fixed income allocation in 2026, I would lean toward broad sukuk ETF exposure as the core position (using the lowest-cost ETFs available), with potentially some complementary exposure to specific regional products or shorter-duration funds depending on your portfolio needs. The building blocks are finally there to construct a proper fixed income allocation, and the supply growth of 2025 is a big part of why that is true.

The broader picture

The growth of sukuk to $200 billion annual issuance is a milestone that matters beyond just the specific numbers. It represents the maturation of sukuk from a specialized product for Muslim investors to a legitimate global fixed income asset class that conventional investors increasingly treat as part of their regular opportunity set. That transition is probably the most important structural development in Islamic finance over the last decade, and 2025 was the year it became clearly visible in the data.

Whether sukuk reaches $300 billion or $500 billion in annual issuance over the next five years depends on how the supply and demand dynamics play out. But the direction of travel is clear, and halal investors who build their portfolios around this maturing market are going to have much better outcomes than those who treat sukuk as a specialty asset that can only be accessed with difficulty. The market has grown up. It is time for investors to recognize that.