Kuala lumpur: Malaysia drove global sukuk issuance growth in the first half of 2026 (1H 2026), with strong local currency issuance offsetting weaker Gulf Cooperation Council (GCC) countries issuance, according to SandP Global Ratings.
According to BERNAMA News Agency, the ratings agency reported that global sukuk issuance reached US$129 billion in the first half of 2026, up from US$112.3 billion in the same period last year. SandP Global Ratings maintained its full-year forecast for issuance to rise modestly to between US$270 billion and US$280 billion.
The report highlighted that issuance would continue to be driven mainly by local currency markets, particularly Malaysia, where strong growth in the first half of the year offset a nine percent decline in GCC issuance due to the Middle East conflict.
SandP noted that sukuk issuance growth had been underpinned by local currency markets, notably in Malaysia, Qatar, Saudi Arabia, and Trkiye. These markets are expected to remain the main growth drivers amid ongoing geopolitical tensions and a more restrictive interest rate environment, which would continue to weigh on foreign currency-denominated issuance.
The decline in foreign currency sukuk issuance could have been more pronounced without a US$7.3 billion increase in Malaysia's foreign currency issuances, led by the International Islamic Liquidity Management Corporation (IILM). This increase, driven by strong demand for short-term, Sharia-compliant liquid instruments amid global volatility, partially offset a cumulative US$11.3 billion decline in GCC issuance volumes.
The decline in GCC issuance was largely due to a significant economic slowdown in the first half of 2026, stemming from reduced hydrocarbon output and weaker non-oil economic activity. Meanwhile, the onset of the Middle East conflict prompted several GCC issuers to turn to the conventional private placement market due to its ample liquidity, simplicity, and speed of execution.
SandP stated that while the Iran-US memorandum of understanding had provided the market with a reason for optimism, renewed hostilities and the potential for localized clashes posed risks to energy exports and foreign investor confidence, and could prompt global central banks to adopt policies that dampen issuance volumes.
While foreign exchange issuance volumes are expected to continue increasing, they are anticipated to remain below 2025 levels as long as geopolitical risks persist. Further regional conflict poses a significant downside risk. Overall, sukuk issuance is expected to expand modestly in 2026, supported by robust local currency activity in Malaysia, with a full-year 2026 forecast of US$270 billion to US$280 billion of issuance.
The potential revision of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) Sharia Standard 62, relating to the transition from 'sponsor-backed' to 'asset-backed' sukuk structures, is not expected to affect sukuk issuance volumes in 2026.
Looking beyond near-term volatility, SandP maintained a positive medium-term outlook for the sukuk market, supported by the expansion of sustainable finance, regulatory frameworks, tokenization, and other financial technology innovations that could enhance market efficiency.