GCC ties to propel ASEAN Islamic finance past $1tn, Fitch says
The bloc's Islamic finance sector reached nearly $950 billion at the end of the first half of 2025, accounting for about a quarter of the global total, the agency said in a report. Demand remains uneven within ASEAN, with limited presence in Singapore, the Philippines and Thailand, and underdeveloped markets in Vietnam, Laos, Cambodia and Myanmar.
ASEAN's Islamic finance industry is expanding in line with global trends, with worldwide assets projected to reach $7.5 trillion by 2028, up from $5.5 trillion in 2024, according to Standard Chartered.
In its latest report, Fitch stated: 'Growth will continue to be led by Malaysia, Indonesia and Brunei due to their large Muslim populations, enabling regulations, access to sukuk, and potentially improving ties with Gulf Cooperation Council countries.'
GCC investors already hold stakes in some Malaysian banks, while Gulf Islamic banks are key arrangers and investors in dollar sukuk issued in Malaysia, Indonesia and the Philippines — a pattern seen in markets such as the UK, Turkiye and Kazakhstan.
Sukuk dominate
ASEAN's sukuk outstanding reached $475 billion by mid-2025, making up 16 percent of the region's debt capital market.
Malaysia and Indonesia lead the way, contributing nearly half, 47 percent, of the global sukuk market. 'Sukuk outstanding represents 59 percent of Malaysia's debt capital market and 18 percent in Indonesia,' Fitch highlighted.
Environmental, social, and governance-linked sukuk are also concentrated in these two nations, while Singapore serves as a key listing hub for dollar-denominated sukuk.
Banking and funds
Malaysia remained ASEAN's largest Islamic banking market, with assets totaling about $300 billion, representing 42 percent of total system financing.
Indonesia followed with $56 billion in Islamic banking assets, though its market share remains modest at 7 percent. Brunei's Islamic banks hold a dominant 63 percent of the country's total banking assets.
In the takaful sector, Malaysia's family takaful accounts for 39 percent of the insurance market, while Brunei's takaful penetration stands at 47.8 percent.
The Philippines has taken steps to develop its Islamic finance ecosystem, issuing its first takaful operator licenses in 2024 and introducing guidelines for micro-takaful products.
Regulatory gaps
Recent high-level meetings have reinforced Islamic finance's role in ASEAN's economic strategy. The 12th ASEAN Finance Ministers and Central Bank Governors' Meeting in April emphasized its importance in sustainable and infrastructure financing.
Meanwhile, the second ASEAN-GCC summit in May strengthened cross-border ties, with Fitch noting that 'GCC Islamic banks are key investors and arrangers of dollar sukuk issued in Malaysia, Indonesia, and the Philippines.'
Despite progress, regulatory frameworks remain absent in Vietnam, Myanmar, Laos, and Cambodia, limiting growth. However, with deepening GCC connections and strong fundamentals, Fitch expected ASEAN's Islamic finance industry to maintain its upward trajectory.
Fitch's report aligns with S&P Global Ratings' April assessment, which highlighted the Islamic finance industry's rapid expansion in 2024, driven by robust growth in banking assets and sukuk issuances — particularly in foreign currencies.
S&P projected that this momentum will continue in 2025, barring major macroeconomic disruptions, supported by stable oil prices and sustained financing needs from economic transformation programs.
However, risks loom, including potential oil price declines and the possible adoption of Shariah Standard 62, which could reshape sukuk structures from debt-like to equity-like, potentially fragmenting the market and deterring fixed-income investors.
The industry's 10.6 percent asset growth in 2024 was heavily concentrated, with GCC countries — led by Saudi Arabia — contributing 81 percent of Islamic banking expansion, fueled by Vision 2030 projects and deep market penetration.
Meanwhile, Malaysia and Indonesia remained key sukuk hubs, though currency volatility in emerging markets like Turkiye and Egypt poses challenges. Global sukuk issuance is expected to reach $190–200 billion in 2025, with foreign currency issuances playing a pivotal role.
Looking ahead, S&P emphasized that simplifying Islamic finance structures and leveraging fintech could enhance competitiveness, while sustainable sukuk, led by the Kingdom and Indonesia, presents a growing niche.
Yet, the industry's trajectory hinges on regulatory clarity, particularly around Standard 62, which could trigger a pre-emptive issuance surge before implementation.
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