Issuance of new sukuk (Islamic bonds) is set to pick up in 2013 as falling yields and the growth of project bonds encourage more governments and companies to switch from using bank funding to the capital markets, according to US rating agency Standard & Poor’s (S&P).

Last year, there was $24bn of sukuk issuance from GCC-based sovereigns and corporates, and S&P expects the figure to be higher this year.

The use of sukuk to fund infrastructure projects is also expected to pick over the coming years, says Timucin Engin, analyst at S&P. “When you look at the size of the need for infrastructure finance, that needs to be backed by funding other than just from banks,” says Engin.