A New Funding Route for Private Firms Through AED Sukuk

Ask the finance director of a growing Dubai company where the next round of funding will come from and the answer used to be short. A bank facility, perhaps a top-up from shareholders. That list is getting longer. Dirham-denominated sukuk were once the territory of governments and big banks, but they are now showing up in the planning of privately held firms that are well established without being household names.

So what has opened the door, and is it really a realistic route for a mid-size business?

What is a Sukuk?

A sukuk is often described as an Islamic bond, but the comparison only goes so far. A conventional bond is a loan that pays interest. A sukuk gives investors a share in an underlying asset or business activity, and the returns they receive come from that asset. Common structures include:

Ijara, where assets are leased and the rental payments fund the returns.
Murabaha, based on a sale of goods at an agreed mark-up.
Wakala, where an agent manages assets or investments on behalf of investors

For the issuer, the practical result looks familiar. It raises money for a fixed term, pays periodic distributions and returns the principal at maturity. The difference lies in the Shariah-compliant structure behind it.

Why is the Dirham Version Suddenly Interesting?

The UAE's sukuk market has grown quickly. Fitch Ratings says UAE sukuk issuance passed $20 billion in 2025, up more than 50% on the year before, which made it the highest annual total on record. Outstanding sukuk in the country also crossed $70 billion by the end of 2025 (Al Etihad).

Fitch also pointed to policy support such as the retail sukuk programme and the Islamic finance and halal strategy, and it expects issuance to stay strong through 2026. Most of that headline volume is dollar-denominated, but the same momentum is lifting the local currency side. A deeper market gives smaller issuers something they have lacked for years, which is a proper reference point.

The Benchmark Curve is Doing the Quiet Work

Any issuer needs to know what a fair price looks like. That is where the federal government's dirham curve matters. The Ministry of Finance runs regular treasury sukuk and bond auctions, and the results give the market a clear yardstick.

The July 2026 round shows how healthy the appetite is. The auctions raised AED 1.1 billion against bids of AED 4.83 billion, an oversubscription of 4.4 times. The treasury sukuk maturing in October 2027 priced at a yield of 4.49 percent, and both instruments are listed on Nasdaq Dubai. Back in January, the total outstanding under the two programmes had reached Dh28 billion, with maturities running from two to five years.

For a mid-size company, this is useful in a very practical way. A private issuer can be priced as a spread over a visible government curve, which makes negotiations with investors far more straightforward.

Banks have also helped prove the concept. Emirates Islamic issued an AED 1 billion sukuk that was the first from a UAE Islamic financial institution priced relative to federal treasuries. That kind of precedent gives lawyers, arbiters of pricing and investors a template to work from (Legal Community MENA).

Why Mid-Size Companies are Paying Attention

Several motivations keep coming up in conversations about this shift:

Funding diversification. Relying on one or two lenders can be risky. A sukuk adds a second source of capital and reduces dependence on bank appetite.
Currency match. A company that earns in dirhams and borrows in dirhams avoids exchange rate surprises. Because the dirham is pegged to the US dollar, dollar funding has often felt safe, but a local currency structure keeps the books cleaner.
Longer tenors. Bank loans can be short or come with tight covenants. A sukuk can offer a fixed term that suits a multi-year expansion.
A wider investor base. Islamic funds, family offices and regional institutions actively look for Shariah-compliant paper. Some of them cannot hold conventional debt at all.
Visibility. Issuing in the capital markets puts a company in front of a new audience and builds a public credit profile that can help in later deals.

The Hurdles Companies Should Expect

Sukuk are not a shortcut. A few realities tend to surprise first-time issuers:

Cost and complexity. Structuring, legal work, Shariah review and rating fees can be heavy for a small raise. Programmes make more sense when a company expects to issue more than once.
Disclosure. Investors will expect audited accounts, clear governance and regular reporting. Firms used to private bank relationships may find this a big change.
Asset requirements. A sukuk needs an identifiable asset pool or business activity to sit on. Asset-light companies may need to think creatively about structure.
Liquidity. Smaller issues can trade thinly, and investors may ask for a premium to compensate.
Market timing. Windows can close when rates move sharply or global sentiment turns.

Questions Worth Asking Before You Issue

A company weighing this route can start with a short checklist:

How much do we need to raise and over what period?
Do we have assets or cash flows that fit a Shariah-compliant structure?
Can our reporting stand up to investor scrutiny?
Would a one-off deal or a programme suit us better?
Which advisers, arrangers and Shariah scholars have done this before in the UAE?

Honest answers to these will usually show quickly whether the idea is ready or needs another year of preparation.

Where This is Heading

The ingredients are lining up. There is a visible government curve, a record run of issuance, rising retail participation and policy that actively favours Islamic finance. Each step makes the next deal a little cheaper and easier to explain. Mid-size companies that build clean financials and a credible story now will be best placed when the window is wide open. The dirham sukuk market is still young, but the early movers are already shaping how the next wave will look.