key takeaways
- Islamic finance continues its rapid global expansion, approaching US$6tn in assets.
- Sustainable sukuk and ESG-linked structures are attracting a broader investor base.
- AAOIFI Standard No. 62 remains the most significant regulatory development to watch.
- Tokenisation is moving from concept to practical implementation across Islamic finance markets.
- Offshore jurisdictions continue to play a central role in cross-border structuring.
The Islamic finance industry continues to evolve at pace, shaped by record sukuk issuance, an accelerating convergence of Shariah-compliant and sustainable investing and significant regulatory developments, including the ongoing consultation around AAOIFI Shariah Standard No. 62, which could reshape sukuk structuring globally.
Against this backdrop, Alexandra Simpson and Seyed Ahlesaadat summarise their key takeaways from the IFN UK Forum 2026.
A maturing asset class with global reach
The global Islamic finance industry now represents assets of almost US$6tn. Record issuance in 2025, with foreign currency-denominated sukuk nearly doubling in volume since 2021, underscores the growing cross-border appetite for Shariah-compliant instruments and the increasing participation of non-traditional investors.
GCC markets continue to lead, with Saudi Arabia's economic diversification programme generating a substantial sovereign issuance pipeline. However, the geographic base is broadening, new sovereign issuers have entered the market and institutional transactions – such as the Islamic Development Bank's benchmark sukuk in May 2026 – are attracting meaningful allocations from European and UK investors alongside their traditional Middle Eastern and Asian base. Commentary during the event indicated that the outlook for 2026 is positive but moderated, with rating agencies noting the potential impact of geopolitical tensions on growth across key Islamic finance economies.
The 'green halal' convergence
As explored in an earlier article, one of the more significant qualitative shifts in the market is the convergence of Islamic finance with sustainable investing. What began as a natural alignment of principles – Shariah frameworks inherently promote asset-backing, lower leverage and restrictions on speculative activity, all of which overlap with ESG governance mandates – has now become a practical and investable proposition.
Sustainable sukuk issuance set new records in 2025, with Fitch Ratings projecting outstanding ESG sukuk to exceed US$70bn by end-2026. Importantly, sustainable sukuk is no longer the preserve of Islamic investors alone: ESG-focused institutional investors in Western markets are increasingly allocating to the asset class as part of diversified portfolios, broadening the demand base considerably.
Standardisation is advancing. The joint International Capital Market Association (ICMA), Islamic Development Bank (IsDB), and London Stock Exchange Group (LSEG) Guidance on Green, Social and Sustainability Sukuk is lending credibility and rigour to disclosure and use-of-proceeds requirements. For offshore structuring, the convergence is generating demand for SPV vehicles in jurisdictions that can accommodate both Shariah-compliant and ESG-compliant governance frameworks. Offshore financial centres continue to develop guidance and regulatory frameworks to support these evolving requirements.
AAOIFI Shariah Standard No. 62: a structuring question
The ongoing consideration of the proposed AAOIFI Shariah Standard No. 62 remains the most closely watched regulatory development in Islamic finance. At its core, the standard seeks to move the market away from predominantly "asset-based" sukuk (where underlying assets remain on the obligor's balance sheet) towards "asset-backed" structures involving genuine legal ownership transfer.
The standard is still in draft and subject to extensive consultation – AAOIFI confirmed this in April 2025, and issuers are expected to be given a transitional window of one to three years once the final form is settled. Retroactive application to existing sukuk is considered unlikely.
The market response has been instructive. Saudi Arabia's landmark sovereign sukuk in September 2025 was structured in line with the draft standard and attracted substantial oversubscription, signalling real appetite for equity-like instruments. In the UAE, however, initial moves to include asset-transfer and right-to-register provisions in sukuk documentation have since been scaled back in more recent issuances – reflecting an evolving rather than settled market practice.
Evolving documentation practices
Beyond the headline question of Standard 62, broader shifts in sukuk documentation are underway. Market practice is moving towards enhanced disclosure on asset valuation and legal risks, with some issuances replacing fixed price undertakings with market-value dissolution mechanisms. Cross-border transactions increasingly require bespoke documentation that navigates the interaction between Shariah requirements, local property and insolvency laws, and the regulatory expectations of the SPV's domicile.
The practical implication is that sukuk documentation is becoming more jurisdiction sensitive. Standardised template approaches are giving way to structures tailored to the specific legal characteristics of the SPV's home jurisdiction – reinforcing the importance of specialist offshore legal advice in transaction structuring.
Tokenisation: from concept to market practice
Tokenised and fractionalised sukuk are no longer theoretical concepts. Discussions at the forum highlighted how tokenisation is beginning to reshape the issuance, distribution and administration of Shariah-compliant investment products, opening the door to greater efficiency, broader investor participation and enhanced liquidity.
Across the GCC, initiatives such as ADIB's Smart Sukuk, Dubai's digital real estate infrastructure, the DFSA's Tokenisation Sandbox and ADGM's digital securities framework demonstrate growing momentum behind regulated digital Islamic finance. What was once viewed as a future opportunity is increasingly becoming a practical consideration for issuers, sponsors and investors alike.
As the market develops, regulatory certainty will be a critical factor in supporting adoption. Offshore jurisdictions continue to play an important role by providing established legal frameworks, experienced service providers and flexible structuring solutions that can accommodate both traditional and digital asset models. Regulatory frameworks continue to evolve across leading offshore financial centres, providing increased certainty for sponsors and investors exploring tokenised Islamic finance structures.
For sponsors of Shariah-compliant digital asset products, the focus is increasingly shifting from whether tokenisation is viable to how these structures can be implemented effectively and at scale. As tokenisation continues its transition from concept to market practice, demand is likely to grow for jurisdictions that can combine regulatory clarity, investor confidence and efficient cross-border structuring solutions. Offshore financial centres are well positioned to support this next phase of development as digital innovation becomes an increasingly important component of the Islamic finance ecosystem.
How we can help
Offshore financial centres remain integral to cross-border Islamic finance, providing the legal and corporate infrastructure for sukuk issuing SPVs, Shariah-compliant investment funds, murabaha and commodity finance vehicles, trust and fiduciary arrangements, and master investment platforms. Demand from institutions for offshore structures through which to deploy capital into international markets continues to grow, while high-net-worth individuals and family offices increasingly utilise offshore trusts, foundations and funds for asset structuring and succession planning. The convergence of Islamic finance and sustainable finance is creating further opportunities, with ESG-linked investments and sustainability-focused sukuk frequently incorporating offshore vehicles as part of their structuring framework.
Fluent in the principles of Islamic finance, our experienced team advises on Bermuda, British Virgin Islands, Cayman Islands, Guernsey and Jersey law aspects of a broad range of Shariah-compliant finance and investment products – including murabaha, mudaraba, ijara and sukuk structures. Acting regularly for conventional and Islamic financial institutions, investment managers, advisers and sovereign wealth funds, we have extensive experience in the offshore elements of Islamic finance transactions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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