Malaysia Drives Global Sukuk Growth as GCC Issuance Slows

Global sukuk issuance rose to $129 billion (RM525 billion) in the first half of 2026, up from $112.3 billion in the same period last year, S&P Global Ratings said in a report published July 15, 2026. The growth was driven almost entirely by Malaysia, whose local-currency market and a surge in Malaysian foreign-currency issuance offset a sharp pullback across the Gulf Cooperation Council, according to S&P.

Local currency-denominated sukuk issuance climbed by $18.6 billion year-on-year to reach $87.6 billion by June 30, per S&P Global Ratings. Foreign currency issuance, by contrast, declined by $1.9 billion to $41.4 billion over the same period, the rating agency said. Malaysia has long run the world’s largest local-currency sukuk market, and that depth is now doing the heavy lifting for the entire asset class.

How Malaysia Offset the Gulf Slowdown

The foreign-currency decline would have been considerably steeper without Malaysia, S&P Global Ratings noted. A $7.3 billion increase in Malaysian foreign-currency issuance, led by the Kuala Lumpur-headquartered International Islamic Liquidity Management Corporation (IILM), reflected strong demand for short-term Sharia-compliant liquidity instruments. That increase absorbed a large share of an $11.3 billion decline in issuance across GCC countries — a 9% drop, per S&P Global Ratings. The IILM’s role points to a structural fact: Malaysia doesn’t just issue more sukuk, it hosts the institution other central banks and Islamic financial institutions turn to for short-dated liquidity management, a function the GCC has no direct equivalent for.

Why the Gulf Retreated

The GCC slowdown traces to a broader economic contraction in the first half of 2026 — reduced hydrocarbon output and softer non-oil economic activity, S&P Global Ratings said. The onset of the Middle East conflict pushed several GCC issuers toward the conventional private placement market instead, drawn by its ample liquidity, simplicity, and faster execution, according to the rating agency. That is a notable substitution: issuers choosing speed and depth over structuring a Sharia-compliant instrument when conditions turn urgent. It also was not the story for the full first half. GCC sukuk issuance had actually grown 13.1% in the first four months of 2026, led by Saudi Arabia, before the slowdown took hold, S&P Global Ratings said.

What S&P Expects Next

S&P Global Ratings maintained its full-year 2026 forecast of $270-280 billion in global sukuk issuance, unchanged from prior guidance, against $264.8 billion in full-year 2025 issuance. “While we anticipate foreign exchange issuance volumes will continue to increase, we expect them to remain below 2025 levels as long as geopolitical risks persist,” S&P Global Ratings said in the report. That is a specific caveat: the rating agency isn’t calling for a Gulf recovery in foreign-currency issuance this year, only a partial one, with the ceiling set by how long the regional conflict runs.

The market’s structure is also shifting under the surface. AAOIFI standards development remains a background factor S&P Global Ratings flags as shaping how issuers structure future sukuk, a process that could affect costs and timelines for both Gulf and Southeast Asian issuers alike. For funds and platforms that track the asset class, including venues covered in Best Sukuk Investment Platforms, the H1 2026 numbers confirm that geography now matters as much as yield: Malaysian-linked paper carried the market while Gulf issuance retrenched.

What to Watch

The next data point will be S&P Global Ratings’ full-year 2026 tally, due in early 2027, which will show whether the $270-280 billion forecast holds and whether GCC foreign-currency issuance recovers as the regional conflict’s trajectory becomes clearer. Until then, the IILM’s issuance calendar and Malaysia’s local-currency pipeline remain the swing factors keeping global sukuk growth positive.

Frequently Asked Questions

How much sukuk was issued globally in the first half of 2026?
Global sukuk issuance reached $129 billion in H1 2026, up from $112.3 billion in H1 2025, according to S&P Global Ratings’ July 15, 2026 report.

Why did Malaysia’s sukuk market grow while the GCC declined?
Per S&P Global Ratings, Malaysia’s local-currency issuance rose $18.6 billion year-on-year and its foreign-currency issuance rose $7.3 billion, led by IILM demand for short-term Sharia-compliant liquidity, while GCC economies slowed due to reduced hydrocarbon output and the Middle East conflict.

What is the IILM’s role in sukuk issuance?
The Kuala Lumpur-based International Islamic Liquidity Management Corporation issues short-term Sharia-compliant instruments that central banks and Islamic financial institutions use for liquidity management, and it led the $7.3 billion rise in Malaysian foreign-currency sukuk issuance in H1 2026, per S&P Global Ratings.

What is S&P’s forecast for full-year 2026 sukuk issuance?
S&P Global Ratings maintained its forecast of $270-280 billion in global sukuk issuance for 2026, up from $264.8 billion issued in full-year 2025.

Why did some GCC issuers avoid the sukuk market in H1 2026?
Several GCC issuers turned to the conventional private placement market instead, drawn by its ample liquidity, simpler structuring, and faster execution amid the Middle East conflict, per S&P Global Ratings.