KUALA LUMPUR, October 28, 2026 — Malaysia’s Islamic finance industry is expected to exceed US$800 billion, according to Fitch Ratings. The industry had reached this level by the end of the third quarter of 2026, with further growth expected.
Fitch said Malaysia’s strong domestic market and established financial system would support the industry. Government policy measures under Budget 2027 are also expected to help sustain growth.
Malaysia Maintains Its Global Sukuk Leadership
Malaysia is expected to remain a global leader in sukuk, Islamic banking, Islamic investment funds and takaful.
At the end of the third quarter of 2026, sukuk accounted for 47% of the country’s Islamic finance industry. Islamic banking assets made up another 42%.
Meanwhile, Islamic funds contributed 8%, while takaful accounted for the remaining 3%.
Malaysia also remained the world’s largest sukuk market. It accounted for 33% of global sukuk outstanding and about 64% of the country’s domestic debt capital market.
Islamic Finance Growth Faces External Risks
Despite the positive outlook, Fitch warned that several external factors could affect future growth.
These include changes in currency exchange rates, interest rates and commodity prices. Market volatility and lower government sukuk issuance could also affect the sector.
Fitch said Malaysia’s developed domestic market and established Islamic finance ecosystem continued to support the industry’s resilience.
Islamic Banking and Takaful Continue to Expand
Islamic financing accounted for 44.3% of total banking system financing in August 2026. This was slightly higher than the 44% recorded in 2025.
Fitch expects the segment to grow further as banks continue to prioritise Islamic finance strategies.
Islamic funds represented 22.4% of total industry assets under management at the end of the first half of 2026. Takaful, meanwhile, accounted for about 20% of insurance industry assets at the end of the first quarter.
Digitalisation and Sustainable Finance Offer New Opportunities
Fitch said digital technology and sustainable finance could provide further support for the industry.
Recent developments include Khazanah Nasional Bhd’s first tokenised sukuk and Bank Negara Malaysia’s launch of SSDS+. These initiatives support the development of technology-based Islamic capital markets.
In addition, outstanding environmental, social and governance (ESG) debt rose by 27% year-on-year to US$21 billion. Sukuk accounted for 92% of that total.
Malaysia’s Capital Market Masterplan 2026–2030 also targets RM90 billion to RM100 billion in cumulative financing for environmental and social priorities.
Overall, Fitch expects Malaysia’s Islamic finance industry to continue growing. However, its outlook will depend on domestic market strength and developments in the global economy.
Source: AWANI | Rewritten By Minutesmy
