Islamic Finance Sector Demonstrates Continued Resilience Amid Global Uncertainties

KUALA LUMPUR: Global sukuk issuance is projected to remain robust, yet increasing geopolitical tensions in West Asia may exacerbate funding disparities, particularly affecting smaller issuers as investor selectivity intensifies.

The conflict’s repercussions are primarily driven by overarching macroeconomic and geopolitical factors, such as energy prices, inflation, trade disruptions, and market sentiment, rather than unique challenges within Islamic finance.

The Islamic Finance Development Report (IFDI) 2026, unveiled at the Kuala Lumpur Islamic Finance Forum (KLIFF 2026), suggests that sovereign nations and major financial institutions are poised to maintain funding access, whereas smaller entities may postpone sukuk issuances until market conditions stabilize.

Near-term sukuk issuance is anticipated to be driven by expanding funding needs among Gulf Cooperation Council (GCC) sovereigns, coupled with sustained investor demand for sukuk instruments.

However, activity is likely to be concentrated among prominent sovereign and banking entities, leaving smaller market participants more susceptible to fluctuating market dynamics.

Despite these challenges, the global Islamic finance sector has shown resilience in 2025, with assets rising 9% year-over-year to US$6.5 trillion, as per the IFDI 2026 report.

Islamic banks are facing pressures from rising living costs and tightened business cash flows, though Malaysia and Indonesia are better equipped to navigate these challenges thanks to established Islamic finance ecosystems and locally focused banking structures, according to the report.

Malaysia’s Islamic finance framework is relatively stable, bolstered by its domestic banking emphasis and liquefied natural gas exports, though indirect impacts from the conflict persist.

The global Islamic finance industry is projected to reach US$10.5 trillion by 2030, achieving a compound annual growth rate of 9%, as outlined in the report.

Sustaining this trajectory will necessitate strengthening the industry’s talent pipeline, the report emphasizes.

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