Fitch Ratings said Thursday it expects the Islamic finance industry in the Association of Southeast Asian Nations (ASEAN) to reach $1 trillion by end-2026, after growing to nearly $950 billion by the first half of 2025.
The industry’s growth will continue to be led by Malaysia, Indonesia and Brunei, Fitch projected, citing their large Muslim populations which enable regulations, accessibility to the Islamic bond sukuk and potential for stronger ties with countries from the Gulf Cooperation Council (GCC).
Demand for Islamic finance in ASEAN remains fragmented, with a limited presence in Singapore, the Philippines and Thailand, Fitch said.
It said that in the Philippines, the outstanding sukuk has remained flat since its first sovereign issuance in 2023. The sole Islamic bank in the country had assets of $20 million, significantly lower than Brunei’s nearly $10 billion in Islamic banking assets at the end of 2024.
To support the industry, the Bangko Sentral ng Pilipinas eased capital requirements for Islamic banking units in 2023.
The Insurance Commission also issued guidelines for takaful, or Islamic insurance, and granted the first two takaful operator licenses in 2024. This year, guidelines were issued for inclusive micro-products, such as micro takaful.
Fitch said Islamic finance has a key role in achieving sustainable and inclusive growth, particularly in infrastructure and green finance, and that stronger ASEAN-GCC ties could boost market penetration.
“ASEAN-GCC relationships are evident through GCC shareholders in a few Malaysian banks, and GCC Islamic banks are key investors and arrangers of dollar sukuk issued in Malaysia, Indonesia and the Philippines,” Fitch said.
“Closer links could foster growth, as seen with GCC investors’ support for the Islamic finance industry in the UK, Turkiye and Kazakhstan,” it said.
