Islamic finance assets projected to surpass $10.5 trillion

Global Islamic finance assets are projected to exceed $10.5 trillion by 2030, driven by expanding banking operations, record sukuk issuance and growing adoption across emerging markets, according to a new industry assessment.

The 2026 Islamic Finance Development Report, released by London Stock Exchange Group (LSEG) and the Islamic Corporation for the Development of the Private Sector (ICD), estimates that industry assets reached $6.5 trillion in 2025, representing annual growth of 9%.

The findings, unveiled at the Kuala Lumpur Islamic Finance Forum in Malaysia, indicate that the industry could expand by more than 60% over five years. The forecast reflects stronger demand for Shariah-compliant financial products, regulatory reforms and increasing participation from markets beyond established Islamic finance centres.

Islamic banking remains the industry’s largest component, accounting for approximately $4.6 trillion, or 71% of total assets. Banking assets increased 8% during 2025, with Islamic banking services operating across 84 countries.

Sukuk, the Islamic equivalent of bonds, recorded another significant expansion. Global issuance climbed 14.5% to a record $291.4 billion during 2025, reflecting demand from governments, corporations and institutional investors seeking alternative financing instruments.

Saudi Arabia emerged as the largest sukuk market by outstanding value, while Saudi Arabia and Malaysia together accounted for approximately two-thirds of the global outstanding market.

Malaysia retained first place in the Islamic Finance Development Indicator, scoring 136 points, followed by Saudi Arabia with 113 and the United Arab Emirates with 95. Indonesia and Pakistan completed the five leading markets.

The indicator evaluates 140 countries across financial performance, governance, sustainability, awareness and knowledge. Its global score increased from 11 to 12, with 71% of assessed countries recording improvements.

Mustafa Adil, Head of Islamic Finance at LSEG, attributed the industry’s projected expansion to continued banking growth, sukuk issuance, emerging-market adoption and demand for sustainable and digital financial solutions.

Growth is also spreading across Africa and Central Asia, where governments are introducing regulatory frameworks designed to accommodate Islamic banking and capital-market products.

African sovereign sukuk issuance reached $4.5 billion in 2025, compared with $1.7 billion in 2021. Benin’s inaugural $500 million sukuk attracted orders exceeding $7 billion, demonstrating substantial investor interest in new sovereign issuers.

Uzbekistan has introduced legislation permitting Islamic banking operations and dedicated Islamic banking windows within conventional institutions. Kazakhstan has also pursued regulatory changes intended to broaden access to Shariah-compliant financing.

Islamic investment funds recorded particularly strong performance. Their combined assets increased 22% to $375 billion during 2025, supported partly by gains in United States equities.

Sustainable finance represented another expanding segment. Environmental, social and governance sukuk issuance increased 54% to a record $23.8 billion, while ESG-focused Islamic investment funds accumulated assets of $10.7 billion.

Financial institutions in the UAE contributed to this activity. Emirates Islamic and Dubai Islamic Bank issued sustainability-linked sukuk valued at $500 million and $1 billion respectively.

Takaful, the Islamic insurance sector, registered asset growth of 9% to $146 billion. The industry comprised 401 operators and Islamic insurance windows across 54 countries, with Gulf Cooperation Council markets accounting for 21% of global assets.

Nevertheless, the report identified constraints that could affect the pace of expansion. Differences between regulatory systems, shortages of qualified professionals and limited secondary-market liquidity remain obstacles to deeper integration.

Geopolitical instability and economic pressures also present challenges. Bangladesh’s Islamic banking asset growth slowed to 3% amid governance concerns, liquidity pressures and weakening confidence in parts of its banking system.

The report found that Gulf banks maintained resilience despite regional tensions, supported by capital buffers, asset quality and sovereign backing. However, inflation, energy costs and foreign-exchange pressures could complicate conditions in more vulnerable markets.

Digitalisation is reshaping financial services through financial technology, open banking and tokenised sukuk, potentially improving issuance, settlement and access to financing. The report cautioned that specialist education and professional development were failing to keep pace with industry expansion.

Khalid Khalafalla, Acting Chief Executive Officer of ICD, emphasised the institution’s commitment to private-sector development through targeted financing and Islamic financial solutions across its member countries.

The assessment also highlighted growth among non-bank Islamic financial institutions, including financing companies, microfinance providers and financial technology businesses. More than 1,200 such institutions operate across surveyed markets, with the largest concentration in Saudi Arabia, followed by Indonesia, Pakistan and the UAE.