Global policymakers, regulators and industry executives gathered in Jeddah to accelerate the expansion of Islamic asset management, seeking to unlock deeper liquidity across Shariah-compliant markets and address structural gaps that continue to restrain cross-border flows.Deliberations centred on the fragmentation of regulatory frameworks, uneven development of domestic capital markets and the limited integration of advanced digital infrastructure, all of which participants said were constraining the sector’s ability to compete at scale with conventional asset management.
Islamic finance assets are estimated to exceed $3 trillion globally, spanning banking, sukuk, takaful and funds, with asset management representing a smaller but steadily expanding share. Industry data indicate that Islamic funds under management have grown consistently over the past decade, driven by demand from Gulf Cooperation Council states, Southeast Asia and select African markets. Yet market participants argue that growth remains below potential, particularly in the asset management segment, where cross-border fund distribution remains complex.
Saudi Arabia has emerged as a central hub in this landscape, underpinned by its Vision 2030 strategy to diversify the economy and deepen capital markets. The kingdom hosts one of the largest Islamic fund industries by assets, supported by a broad domestic investor base and regulatory reforms aimed at encouraging foreign participation. Officials in Jeddah emphasised the need to transform this domestic strength into a platform for international scale.
Executives highlighted the divergence in Shariah standards and regulatory interpretations across jurisdictions as a primary obstacle. While bodies such as the Accounting and Auditing Organization for Islamic Financial Institutions and the Islamic Financial Services Board provide guidance, adoption remains uneven. Fund managers operating across multiple markets often face duplicative compliance requirements, increasing costs and limiting product innovation.
Participants also underscored disparities in capital market depth. Countries such as Saudi Arabia and Malaysia have developed active sukuk markets and relatively mature fund ecosystems, while others lag in secondary market liquidity and institutional investor participation. This imbalance complicates portfolio diversification and reduces the attractiveness of Islamic funds to global investors seeking scale and efficiency.
Technology emerged as another focal point. Speakers pointed to the slow adoption of digital onboarding, tokenisation and data analytics in some markets as a constraint on efficiency. Fintech integration in Islamic finance has progressed, but not uniformly. Industry leaders argued that blockchain-based sukuk issuance and digital asset platforms could enhance transparency and broaden access, provided regulatory clarity is strengthened.
The push for scale is unfolding against a backdrop of shifting global liquidity conditions. Higher interest rates over the past two years have tightened financial conditions worldwide, prompting investors to reassess risk allocation. At the same time, strong oil revenues in Gulf states have bolstered domestic savings pools, creating an opportunity to channel capital into diversified Islamic investment vehicles.
Environmental, social and governance considerations are also shaping the agenda. Islamic finance principles, with their emphasis on risk-sharing and ethical investment, are increasingly being aligned with sustainability frameworks. Green sukuk issuance has expanded, particularly in Malaysia and the Gulf, and asset managers are exploring Shariah-compliant ESG funds to capture demand from younger investors and sovereign institutions seeking long-term thematic exposure.
Industry representatives in Jeddah argued that harmonising standards could unlock significant incremental capital flows. Estimates from market analysts suggest that improved regulatory convergence and cross-border passporting arrangements could materially increase fund distribution across the Organisation of Islamic Cooperation member states, home to more than 1.8 billion people. However, achieving consensus among regulators remains complex, given differing legal systems and levels of market sophistication.
Liquidity management tools were another priority. Islamic financial institutions often face constraints due to the limited availability of short-term Shariah-compliant instruments. Expanding the issuance of sovereign sukuk and developing active secondary markets were cited as measures to strengthen liquidity buffers and enhance the attractiveness of Islamic funds to institutional investors.
Saudi regulators have introduced reforms to broaden market access, including initiatives to simplify foreign ownership rules and encourage the listing of asset managers. Market participants at the summit stressed that continued liberalisation, coupled with strong governance standards, would be critical to attracting global asset managers and fostering joint ventures.
While optimism dominated discussions, industry veterans cautioned that rapid expansion must be balanced with rigorous risk management. The complexity of structuring Shariah-compliant products, they noted, requires consistent oversight to maintain investor confidence. Transparency in fee structures, robust disclosure and effective Shariah governance frameworks were described as essential pillars for sustainable growth.
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