Malaysia’s Islamic finance industry estimated above US$800 billion
Fitch Ratings expects further growth, but flags risks from external volatility, reduced sovereign sukuk issuance and movements in currencies, rates and commodities.
Malaysia’s Islamic finance sector was worth more than US$800 billion at the close of 3Q2026, Fitch Ratings estimates. The agency expects further expansion, citing domestic market depth, an established ecosystem and Budget 2027 policy support.
The estimated industry size was equivalent to more than 150% of gross domestic product (GDP). Sukuk contributed 47%, while Islamic banking assets made up 42%. Islamic funds and takaful accounted for 8% and 3%, respectively, according to Fitch.
Malaysia held 33% of outstanding sukuk globally at the close of 3Q2026, retaining the largest share worldwide. Sukuk also represented about 64% of Malaysia’s domestic debt capital market, the agency said.
Fitch cautioned that the outlook remained exposed to volatility in external markets, reduced sovereign sukuk issuance and changes in currencies, interest rates and commodity prices. Foreign investors’ share of government debt declined from 21.6% at the end of 1Q2026 to 20.6% at the end of 1H2026.
Across banking, Islamic financing represented 44.3% of system financing in August 2026, compared with 44.0% in 2025. Fitch expects that share to increase over the medium term as banks give priority to Islamic finance strategies.
The agency also identified digitalisation and sustainable finance as potential sources of further growth. Outstanding environmental, social and governance debt reached US$21 billion after rising 27% year-on-year, with sukuk making up 92%.
