The United Arab Emirates-UAE is one of the leading hubs for modern Islamic finance and banking practices. Currently, the UAE is ranked second right after Malaysia in the Global Islamic Economy Indicator. Dubai Islamic Bank (DIB) was established in 1975, being the world’s first commercial Islamic bank. As time goes by, more and more Islamic banks started to open in the UAE, and the popularity of Islamic finance increased significantly. So, the government also started passing legislation controlling Islamic finance in 1985. Thus, UAE issued Federal Law no (6) of 1985 regarding Islamic banks, financial institutions, and investment companies. All banks operate the following Law no (6).
Notably, the UAE owns the highest total banking assets in the GCC. Presently, Dubai Islamic banks hold 50% of Sharia-compliant assets in the UAE, while Abu Dhabi banks own 40%. Abu Dhabi came to the Islamic banking industry after the foundation of Abu Dhabi Islamic Bank, is 22 years after the foundation of the UAE’s first Islamic bank (the Dubai Islamic Bank).
The UAE ranks second in the takaful market in the GCC region, but it demonstrates the lowest penetration rate equaling 6%. At present, there are nine takaful companies in the region. General takaful premiums constitute more than 70% of premiums. However, family takaful’s share has been rising in the last five years due to the mandatory health insurance introduced in Dubai and Abu Dhabi. There is a subsequent increase of up to 7% and 12% in gross premium and reinsurance premium. Unfortunately, premium growth started to decline in 2016 due to the rapid fall in hydrocarbon prices that directly impacted all sectors’ economic growth.
Sukuk is currently an essential component of the capital market in the UAE. Up to recent times, conventional bond issuance has dominated the capital market issuance. However, Sukuk issuance volume increased in 2016 after witnessing two years of consecutive decline in 2014 and 2015. Now, the UAE represents 17% of global Sukuk issuance, equaling US$6.75 billion, and this number ranks the UAE as the second largest Sukuk issuer in 2016 after Malaysia. Dubai is the world’s largest venue for Sukuk listings by value. Dubai’s total value of Sukuk on the Nasdaq Dubai in 2017 was US$47.81 billion. Up to now, there are 67 Sukuk listed on the exchange, while 19 Sukuk were listed on Nasdaq Dubai in 2016.
What other new products do Islamic institutions in the UAE need to develop to grow?
The UAE capital market needs to develop more Islamic products which are available in other Islamic markets. For instance: trade and lease financing products for businesses, healthcare financing, wealth management, retirement, etc. Moreover, many equity financing and capital market products are also in the underdeveloped phase.
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