KUALA LUMPUR: Malaysia’s Islamic finance industry is estimated to have exceeded US$800 billion at the end of the third quarter of 2026, representing more than 150% of gross domestic product (GDP), with further growth expected, according to Fitch Ratings.

The rating agency said Malaysia was well positioned to maintain its global leadership in the sukuk market and remain a key player in Islamic banking, Islamic funds and takaful, supported by a deep domestic market, a mature financial ecosystem and policy measures under Budget 2027.

Sukuk accounted for 47% of the industry’s assets, followed by Islamic banking assets at 42%, Islamic funds at 8% and takaful at 3%, Fitch said in a commentary on Oct 28.

Malaysia remained the world’s largest sukuk market at the end of the third quarter, accounting for 33% of global sukuk outstanding and approximately 64% of the country’s domestic debt capital market.

The government also returned to the US dollar sukuk market with a US$1.5 billion issuance, ending a five-year hiatus.

Fitch said Islamic financing accounted for 44.3% of total banking system financing in August 2026, up from 44% in 2025, and was expected to expand further over the medium term as banks continued to prioritise Islamic finance.

Islamic funds represented 22.4% of industry assets under management at the end of the first half of 2026, while takaful accounted for approximately 20% of insurance industry assets at the end of the first quarter.

The agency added that digitalisation and sustainable finance could provide further momentum for the sector. Recent developments included Khazanah Nasional Bhd’s debut tokenised sukuk and Bank Negara Malaysia’s introduction of SSDS+.

Outstanding environmental, social and governance (ESG) debt rose 27% year-on-year to US$21 billion, with sukuk accounting for 92% of the total.

However, Fitch cautioned that growth prospects remained exposed to external market volatility, lower sovereign sukuk issuance and fluctuations in currencies, interest rates and commodity prices.

The agency also projected that Malaysia’s government debt, including sukuk, could gradually decline to around 74% of GDP in 2027, from 77% in 2025, supported by nominal economic growth and planned fiscal consolidation.

Source: BERNAMA, Oct 28, 2026.