The Next Chapter of Islamic Finance

As Islamic finance enters a new phase of growth, the focus is shifting beyond expansion towards stronger governance, greater transparency, sustainable finance, and digital innovation.

In this exclusive interview with Charlotte Robins, Managing Director, Policy & Legal, DFSA, she discusses the regulatory priorities shaping the future of Shari’a-compliant finance within the DIFC and beyond.

How do you see the Islamic finance sector evolving within the UAE and the wider region over the next few years?

The UAE is a leading global market for Islamic finance. According to the Islamic Finance Development Indicator (IFDI), the UAE ranked fourth globally by assets and third based on financial performance and supporting ecosystem metrics in 2024. Dubai International Financial Centre (DIFC) is currently one of the world’s largest venues for the issuance of Sukuk, with more than USD 100 billion of outstanding Sukuk listings, including in relation to Environmental, Social, and Governance (ESG).

Against this backdrop, the Dubai Financial Services Authority’s (DFSA) approach has been to support the continued development of the Islamic finance sector within DIFC by ensuring that its regulatory framework remains clear, proportionate, and aligned with market developments. This approach aligns with broader national and emirate-level objectives, including the UAE Strategy for Islamic Finance and Halal Industry and Dubai Economic Agenda D33, which aim to strengthen the UAE’s position as a global hub for international Islamic finance.

Within the Centre, we are seeing continued activity across Sukuk issuance, Takaful, asset management, and fintech solutions involving Shari’a-compliant structures. ESG considerations are also becoming increasingly relevant within Islamic finance, particularly in the Sukuk market, where investors are placing greater focus on disclosures, governance standards, and the credibility of sustainability-related claims.

We expect the Islamic finance sector to continue evolving alongside broader changes in global financial markets, particularly in relation to sustainability, digitalisation, and capital markets activity.

This includes supporting innovation whilst maintaining appropriate standards around governance, disclosure, investor understanding, and market integrity.

What developments in the market made this the right time to revisit and enhance the regulatory framework?

As the Islamic finance sector develops, products, business models, and delivery channels are becoming increasingly diverse. The DFSA’s approach has been to support the continued development of the Islamic finance sector within DIFC by ensuring that its regulatory framework remains clear, proportionate, and aligned with market developments. This includes addressing areas where greater regulatory clarity or consistency is needed for firms operating in the sector, which we have sought to provide in Consultation Paper 172 (CP 172), in which we propose enhancements to the DFSA’s Islamic Finance Rules Module.

The proposals are intended to provide greater clarity on when an Islamic endorsement is required and strengthen Takaful disclosure requirements. They reflect our broader approach of reviewing the regulatory framework periodically to ensure it remains proportionate, responsive to market developments, and aligned with international standards and best practices.

How important is regulatory clarity in encouraging further growth and innovation in Islamic finance?

Regulatory clarity is fundamental to supporting sustainable market development and innovation. Firms need to understand clearly how regulatory requirements apply to their activities, particularly as Islamic finance products continue to evolve and intersect with areas such as fintech, tokenisation, and sustainable finance.

Clear frameworks also support investor confidence. Clients should be able to understand the nature of the services they are receiving, how products are structured, the governance arrangements supporting Shari’a compliance, and the associated risks. This is one of the key objectives behind CP 172. The proposals seek to provide greater certainty around when firms require an Islamic endorsement and strengthen disclosure expectations for Takaful products. Together, these measures are intended to support clearer regulatory expectations, stronger investor understanding, and greater market confidence.

How do stronger disclosure standards contribute to confidence and trust within the Islamic finance ecosystem?

Disclosure standards play an important role in supporting transparency, investor understanding, and market confidence. This is particularly important in Islamic finance, where clients may wish to understand not only the financial characteristics of a product, but also how Shari’a-related features and governance arrangements operate in practice. In the case of Takaful products, for example, clients should be able to clearly understand how fees are calculated, how surplus-sharing arrangements operate, and whether additional contributions may be required.

The proposals in CP 172 therefore strengthen disclosure requirements for Takaful products to support better investor understanding and consumer protection outcomes. More broadly, consistent and credible disclosures are becoming increasingly important in areas such as ESG Sukuk and sustainable Islamic finance instruments, where investors are placing greater focus on transparency and sustainability-related claims.

Looking ahead, what areas of growth or transformation do you expect to define the next phase of Islamic finance?

We expect several themes to shape the next phase of Islamic finance development including:

The continued growth of sustainable Islamic finance, particularly ESG Sukuk and other products that combine Shari’a-compliant structures with sustainability-related objectives. As this market develops, disclosure quality, governance standards, and investor transparency will remain increasingly important; and

Digitisation, where we are observing increasing interest in Shari’a-compliant fintech solutions, including from issuers exploring the digitalisation and tokenisation of the Sukuk issuance lifecycle. Tokenisation can improve efficiency through faster settlement, enhanced transparency through distributed ledger technology, and broader investor accessibility with fractional ownership which enables smaller investors to participate – whilst maintaining Shari’a compliance requirements.

At the DFSA level, our focus will remain on maintaining a clear, proportionate, and internationally aligned regulatory framework that supports responsible innovation, investor confidence, and the continued development of Islamic finance within DIFC.