The Islamic finance industry in the ASEAN region is among the largest globally, accounting for about a quarter of the global total, Fitch Ratings said in its latest report. Fitch expects the industry’s size in ASEAN to cross $1 trillion by the end of 2026, after reaching nearly $950 billion in H1 2025.
“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 (GCC) countries,” said Fitch.
However, Islamic finance demand in ASEAN is fragmented, with limited presence in Singapore, the Philippines and Thailand. In addition, it remains undeveloped in Vietnam, Laos, Cambodia and Myanmar due to small Muslim populations and a lack of regulatory frameworks.
ASEAN-GCC ties to spur industry growth
The 12th ASEAN Finance Ministers and Central Bank Governors’ Meeting in April 2025 highlighted Islamic finance’s role in sustainable, inclusive growth, especially in infrastructure and green finance. The second ASEAN-GCC summit in May 2025 could provide a catalyst for Islamic finance as it strengthens ties.
ASEAN-GCC relationships are also 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. Closer links could foster growth, as seen with GCC investors’ support for the Islamic finance industry in the UK, Türkiye and Kazakhstan.
Malaysia, Indonesia contribute 47 percent of global sukuk market
Sukuk outstanding in ASEAN reached $475 billion or 16 percent of the debt capital market (DCM) at the end of H1 2025, with Malaysia and Indonesia contributing almost all issuance and together representing 47 percent of the global sukuk market. Sukuk outstanding represent 59 percent of Malaysia’s DCM and 18 percent in Indonesia.
ESG sukuk are also concentrated in these two countries. The Singapore Exchange is the sixth-largest dollar sukuk listing venue globally. Meanwhile, the Philippines’ sukuk outstanding remained flat since its 2023 sovereign debut, while Brunei’s are mainly short-term and sovereign. No sukuk have been issued in other ASEAN countries.
Fitch rates 74 percent of U.S.-dollar sukuk outstanding in ASEAN. These rated-sukuk were issued by Malaysian, Indonesian and Philippine entities. All ratings are investment-grade and issuers on Stable Outlooks.
Malaysia is ASEAN’s largest Islamic banking market
The report also revealed that Malaysia is ASEAN’s largest Islamic banking market, with about $300 billion in assets, and Islamic financing representing 42 percent of total system financing in H1 2025. Indonesia’s Islamic banking assets reached $56 billion in 4M25.
Brunei’s Islamic banks held nearly $10 billion in assets or 63 percent of total banking at end-2024, while the Philippines’ only Islamic bank had assets of about $20 million. Meanwhile, Thailand’s sole Islamic bank had $2.8 billion of assets in H1 2025.
Islamic digital banks are also emerging, including Malaysia’s AEON Bank. Fitch rates four Indonesian Islamic banks, two Malaysian takaful companies and the Islamic Bank of Thailand. Regulatory approaches vary. The Philippines eased capital requirements for Islamic banking units, prompting two new entrants in 2024. No Islamic banking regulatory frameworks have been established in Vietnam, Myanmar, Laos, and Cambodia.
Read: Saudi Arabia, UAE propel GCC assets under management to $2.2 trillion
Malaysia leads ASEAN’s Islamic funds segment with over $50 billion AUM
Malaysia leads ASEAN’s Islamic funds segment, with assets under management (AUM) exceeding $50 billion in 4M25, reflecting an established Islamic finance ecosystem, mature regulatory environment, strong demand and diverse sharia-compliant products. Indonesia’s and Brunei’s Islamic fund markets are smaller, with AUM of $3 billion and $500 million, respectively.
Malaysia, Indonesia and Brunei have the most established takaful markets in ASEAN. General takaful represented 21 percent of Malaysia’s general insurance market in Q1 2025, while family takaful held a 39 percent share in 2024. Indonesia’s takaful sector contributed 8.4 percent of total insurance premiums in 4M25, while Brunei’s share was 47.8 percent in -2024.
The Philippines’ Insurance Commission issued guidelines for takaful window operations in 2024 and on inclusive micro products, including micro takaful in 2025, and granted the first takaful operator licences to two insurers in 2024.
