Islamic finance: global industry profile

Islamic finance comprises financial services structured to comply with Islamic law, or Shariah. Its principles prohibit interest (riba), place restrictions on excessive contractual uncertainty (gharar) and gambling/speculation (maysir), and mandate the avoidance of certain prohibited economic activities. It tends to emphasise the sharing or allocation of commercial risk.

The industry spans banking, sukuk capital markets, investment funds and asset management, and takaful insurance, as well as various specialist activities. It plays a substantial role in financial systems across much of the Gulf, and parts of the wider Middle East and Southeast Asia. Important wholesale hubs have also developed outside Muslim-majority countries, notably in London.

In recent years, there has been noteworthy growth across the industry. The Islamic Financial Services Board (IFSB) estimates that assets covered by its monitoring framework reached US$4.4tn in 2025, up 13.4% year-on-year and around US$1.7tn above 2020. The five-year compound annual growth rate over 2020–2025 was around 10.3%. Banking remains the dominant segment, although sukuk, funds and Islamic insurance all expanded faster during 2025.

Looking ahead, the industry's prospects remain broadly positive, although geopolitical instability has increased uncertainty. In May 2026, S&P Global Ratings expected industry growth to slow to approximately 5–10% during the year as conflict affected core markets.

Longer-term expansion will depend on economic conditions, policy support, and industry actors’ ability to successfully navigate key trends, challenges, and opportunities – some of the most significant of which are outlined below.

Islamic banking is by far the largest segment of the industry – as illustrated in the table above. It provides retail, commercial, corporate, investment and private-banking services without conventional interest-bearing loans or deposits. Common arrangements include murabaha (purchase and resale of an asset at an agreed markup), ijara (leasing), and musharaka (partnership or joint investment).

Providers include both standalone Islamic banks and dedicated divisions within conventional banks, known as Islamic windows. ICD–LSEG counted windows as 48% of Islamic banking institutions in 2024 – though they accounted for only 14% of assets.

Many Islamic banks remain predominantly deposit-funded and retail-oriented, with substantial household and property exposures.

Sukuk are Shariah-compliant capital-market certificates that give investors rights associated with an underlying asset, venture or investment arrangement rather than a conventional interest-bearing debt claim. They are commonly referred to as Islamic bonds.

Issuers include governments, development institutions, banks and other businesses. Proceeds support infrastructure, corporate investment, public spending and bank funding, including regulatory capital.

According to LSEG, total sukuk issuance reached US$291bn in 2025, 14.5% more than in 2024. Foreign-currency issuance rose from 32% to 41% of the total, indicating deeper international participation. Governments still accounted for 48% of issuance, but quasi-sovereign and corporate issuance increased by 45% and 40%, respectively; GCC banks raising regulatory capital generated one-third of corporate issuance.

This segment encompasses Shariah-screened equity funds, sukuk funds, money-market funds, exchange-traded funds, property investments, pension and retirement solutions, and wealth management.

Shariah screening assesses investments against Islamic principles, typically checking companies’ business activities and financial ratios to exclude prohibited activities, such as gambling and alcohol production, and limit exposure to interest-bearing debt and other non-compliant income or assets. Some funds also remove incidental non-compliant income through “purification” arrangements.

Although still much smaller than banking and sukuk, asset management is currently one of the fastest-growing segments. As noted above, the IFSB recorded a 25.6% year-on-year increase in Islamic fund assets in 2025.

Despite strong growth, however, commercial scale remains a challenge: LSEG’s Islamic Investment Review 2025 reports that 56% of active funds held less than US$10m, and 21% less than US$1m.

Takaful is the Islamic alternative to conventional insurance. Participants contribute to a common risk pool, under arrangements based on mutual assistance. Operators manage these pools under structures such as wakala or mudaraba.

Family takaful broadly covers life protection and long-term savings, whilst general takaful covers non-life risks. Retakaful provides Shariah-compliant reinsurance.

The segment remains relatively small, accounting for 1.6% of assets in the IFSB’s 2025 dataset.

Beyond the four headline segments is a heterogeneous group of other participants, including leasing companies, home-finance providers, SME financiers, microfinance institutions and fintech businesses. Fintech supports activities across the industry, from payments and investment to digital banking.

The ecosystem also overlaps with Islamic social finance – including zakat (obligatory charitable giving), waqf (endowments), and benevolent lending. These activities can support inclusion and development, but are generally excluded from commercial industry asset totals.

Islamic finance is global in its scope, but many of its activities remain highly concentrated in a relatively small set of jurisdictions. There is also considerable variation between regions, in terms of their respective strengths, weaknesses, and orientations.

Below, we outline notable characteristics of certain key regions, with reference to data on regional asset distribution compiled by the IFSB.

The Gulf Cooperation Council (GCC) is the largest and most commercially integrated cluster. It accounted for 53.8% of total global assets in the IFSB’s 2025 regional breakdown.

Saudi Arabia is the outstanding market by scale, and it has made Islamic finance part of its Financial Sector Development Program under Vision 2030.

The UAE has also adopted an Islamic finance strategy, targeting AED2.56tn, or roughly US$700bn, of Islamic banking assets and more than AED660bn, or roughly US$180bn, of sukuk issuance by 2031.

Kuwait, Qatar and Bahrain also host major Islamic banks and important market infrastructure and standard-setting bodies.

East Asia and the Pacific accounted for 21.3% of assets in 2025. Notably, it is considerably more capital-market intensive than the GCC, with sukuk outstanding exceeding banking assets.

Malaysia is representative of a mature, diversified ecosystem. In 2024, Islamic finance supplied over 46% of national financing, and takaful nearly 24% of insurance premiums, with the country accounting for 36% of global sukuk outstanding (ICD–LSEG, 2025). It combines a central Shariah governance framework with established Islamic banking, a deep local-currency sukuk market, a substantial Islamic funds industry, and a well-established takaful sector.

Indonesia also offers considerable potential through its large Muslim population and developing financial infrastructure, although Islamic banking penetration there remains below that of Malaysia and the Gulf.

The Middle East and North Africa outside the GCC accounted for 16.4% of assets in 2025, predominantly in banking. Here, Iran is particularly significant because its banking system operates on Islamic principles.

Sukuk are also developing as a funding source in this region. Fitch Ratings put Africa’s outstanding sukuk above US$7bn in August 2026, with Egypt accounting for 48% of that total. Regulatory gaps and underdeveloped domestic markets are said to be constraining expansion, however.

Europe and Central Asia account for a relatively modest share of global Islamic finance assets — 4.9% in 2025. Nonetheless, the region plays host to some notable and varied activity.

Turkey, for example, has an expanding participation banking sector and a recurring sovereign sukuk programme.

In addition, the UK stands as the leading Western hub for legal, advisory, listing and funds (see below), whilst Luxembourg and Ireland are also important fund domiciles and listing centres. Europe’s fund share is much higher than its banking share, reflecting internationally distributed products domiciled or managed in established financial centres.

Meanwhile, there are emerging opportunities in Central Asia supported by reforms and Gulf investor interest.

As of 2025, South Asia accounted for only 2.4% of total global Islamic finance assets. However, its share may grow significantly if Pakistan is successful in its goal of transitioning to a fully Shariah-compliant financial system. This could substantially expand the industry’s footprint, requiring changes to institutions, regulation and liquidity arrangements.

Bangladesh already has a substantial Islamic banking sector, although recent governance and related-party financing problems highlight the risks associated with weak ownership controls.

Sub-Saharan Africa remains small in global terms (accounting for 0.7% of total assets in 2025), but it has enjoyed impressive growth from a low base. A 2025 ICD–LSEG report points to particularly strong growth in Islamic banking in sub-Saharan Africa, counting 104 Islamic banks and banking windows across 28 countries.

Large Muslim populations, infrastructure-financing needs and comparatively limited access to formal financial services create opportunities, but further development is likely to depend on improved technical and institutional capacity, and effective supervision. New institutions and regulatory frameworks have already appeared in markets including Nigeria and Uganda, and more may follow.

The UK remains the leading Western hub for Islamic finance, serving as an important international centre for structuring, listing, financing and servicing Shariah-compliant transactions.

Although Islamic banks accounted for only around 0.1% of UK banking assets in the third quarter of 2024, London’s combination of capital markets, English law expertise, professional services, asset management and wholesale intermediation makes it a key centre for international Islamic financial activity.

TheCityUK describes the UK as a “translation hub”, connecting Gulf and Asian capital with conventional global financial infrastructure.

London is particularly important for sukuk: according to LSEG, more than US$202bn had been raised through 285 sukuk listings on the London Stock Exchange by end-2025. In August 2025, Fitch identified the London Stock Exchange as the world’s largest listing venue for hard-currency sukuk, accounting for more than 40% based on outstanding volumes.

The UK’s Islamic asset-management sector is also growing; assets under management exceeded $12.5bn at end-June 2025, up 22.1% year-on-year.

In addition, recent years have seen notable developments in export finance, such as UKEF’s approximately US$700m Islamic murabaha guarantee for Six Flags Qiddiya City.

Supporting infrastructure includes tax rules intended to provide neutrality between qualifying Islamic and conventional arrangements, as well as the Bank of England’s Alternative Liquidity Facility, which allows participating banks to manage liquidity without interest-bearing deposits.

Domestic retail provision nevertheless remains limited in areas including home finance, pensions and savings, takaful and student finance. According to research commissioned by Offa, cost and limited choice remain significant barriers to the adoption of Islamic home finance in the UK.

However, there are some signs of improvement in this regard. For example, StrideUp completed a £308m sukuk-based residential mortgage-backed securitisation in 2025, demonstrating how specialist providers can access institutional funding. There is also a planned takaful-style Alternative Student Finance scheme in England.

Looking ahead, TheCityUK argue that the UK should prioritise coordinated investment promotion, consistent sovereign sukuk issuance, greater use of Islamic export finance, broader savings and pension provision, support for takaful and tokenisation, clearer tax and regulatory guidance, and stronger international partnerships. Competition from other international centres means that the UK’s established expertise will need to be matched by accessible products and a sustained pipeline of investable projects.

Growth in funds, sukuk and takaful – as alluded to above – is gradually broadening the industry beyond banking. This creates opportunities for Islamic finance providers to expand investment product ranges, attract a broader investor base and meet growing demand for corporate and infrastructure finance.

Policy is serving as an accelerator here. For instance, Saudi Arabia and the UAE are using Islamic finance in economic diversification and development programmes, whilst Indonesia is integrating it with the wider Shariah economy, and Pakistan is pursuing a phased transition towards an Islamic financial system.

However, as the IFSB’s analysis indicates, if long-term success is to be achieved, stronger market infrastructure and supervision will need to accompany growth in assets. With regard to sukuk, for example, it recommends improving disclosure and legal certainty, and standardising classification.

Other constraints include narrow domestic investor bases and limited Shariah-compliant reinsurance capacity. Addressing such issues could help providers manage risks and support more sustainable diversification.

Islamic finance’s concentration in the Gulf and wider Middle East makes it particularly sensitive to conflict and instability in the region.

As such, the Iran war has caused concern within the industry in recent months. The IMF’s April 2026 Global Financial Stability Report described higher energy prices, inflation expectations and bond yields, alongside pressure on emerging-market capital flows. These conditions have the potential to increase funding costs and weaken borrower repayment capacity across both conventional and Islamic finance.

Notably, access to capital markets has been affected. For example, in May 2026, Fitch reported that the Iran war was encouraging GCC banks to use private placements as public issuance became more difficult. Later, on 1 September, Fitch warned that continued disruption through most of 2027 could threaten some GCC ratings.

Nevertheless, Islamic banks generally retain substantial capital and liquidity buffers, according to the IFSB. Fitch’s July assessment also found sukuk credit fundamentals broadly stable, although negative outlooks and watches were becoming more common. The severity of further pressures will depend on the conflict’s duration and escalation.

For institutions, the immediate priorities are likely to include maintaining liquidity buffers, monitoring borrower and counterparty exposures, and testing operational resilience.

Islamic finance operates across national legal systems, prudential rules and Shariah interpretations. Differences can complicate cross-border transactions and increase the cost of developing products for several markets.

Several international standard-setting bodies exist to encourage and facilitate harmonisation. The IFSB develops prudential standards; the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) issues Shariah, accounting, auditing and governance standards; and the International Islamic Financial Market (IIFM) develops unified rules, legal contracts, and product templates. Through their work, they aim to support clearer expectations and more consistent transactions, although national adoption varies.

For example, AAOIFI’s five governance standards issued in December 2024 address matters including Shariah supervisory board appointments, operations and reporting, aiming to improve consistency across jurisdictions and confidence in compliance.

There are difficulties, however – as illustrated by the debate surrounding proposed AAOIFI Shariah Standard 62. Its treatment of sukuk ownership and asset transfer raises questions about investor rights, legal enforceability, accounting and transaction costs.

For regulators, standard-setters and practitioners, the challenge is to strengthen consistency and confidence whilst ensuring that products remain legally robust, commercially viable and accessible across varied markets.

In a recent report, the World Bank and Islamic Development Bank argue that Islamic finance’s emphasis on stewardship, risk-sharing and real economic activity means that it is well-positioned to help meet climate investment needs, opening up substantial opportunities for industry participants.

These opportunities include expanding green and sustainable sukuk, financing renewable energy and resilient infrastructure, helping SMEs and halal businesses decarbonise, developing takaful protection against climate risks, and providing private equity and venture capital for climate technologies.

In sukuk, for example, it seems clear that there is already substantial interest in combining Shariah-compliant structures with environmental and social objectives – LSEG recorded US$23.8bn of ESG sukuk issuance in 2025, up from US$15.4bn in 2024.

Robust sustainability credentials are central to developing this market. Joint ICMA, IsDB and LSEG guidance on green, social and sustainability sukuk recommends external reviews, transparent management of proceeds and annual allocation and impact reporting. Here, there may be opportunities for advisers and assurance providers supporting issuers with project eligibility, reporting systems and verification.

Success will also depend on strong pipelines of viable projects. Technical capacity, project preparation and supportive policies will be needed to translate infrastructure and climate-investment needs into financeable transactions.

Technology is opening up new possibilities for Islamic finance providers to broaden their reach, improve services and develop new products.

For one, digital delivery can widen access to Shariah-compliant financial services. A recent report from the IsDB Institute and UNDP, for example, highlights the potential of fintech solutions to make Islamic microfinance more affordable and accessible to underserved communities in Afghanistan, Bangladesh, and Djibouti.

In addition, AI has a range of possible applications in areas such as customer service and risk analysis, whilst tokenisation may offer various operational benefits, including improved efficiency and transparency.

There are already a significant number of specialist businesses operating in this area: DinarStandard's Global Islamic Fintech Report 2025/26 identifies 484 Islamic fintech companies across 41 countries.

However, the report also flags that commercial success is likely to depend on providers’ ability not only to develop technology, but also to secure funding, navigate fragmented and evolving regulations, and build customer understanding.

The size and diversity of the global Islamic finance industry means that any list of notable players will not be fully representative or comprehensive.

That said, some examples of noteworthy players are set out below.

• Abu Dhabi Islamic Bank (UAE) – major Islamic banking group providing personal, corporate and investment banking services.
• Al Rajhi Bank (Saudi Arabia) – one of the world’s largest Islamic banks, with substantial retail and corporate banking operations.
• Al Rayan Bank (UK) – established Islamic bank specialising in property finance and premier banking, alongside Shariah-compliant savings accounts.
• Bank Syariah Indonesia (Indonesia) – major Islamic bank serving individuals, businesses and institutions across Indonesia.
• DDCAP Group (UK) – intermediary and financial technology provider supporting Shariah-compliant transactions across international markets.
• Dubai Islamic Bank (UAE) – pioneering Islamic banking group with significant retail, corporate and capital markets operations.
• International Islamic Liquidity Management Corporation (Malaysia) – international institution issuing short-term sukuk to support cross-border liquidity management for Islamic financial institutions.
• Islamic Development Bank (Saudi Arabia) – multilateral development bank providing Shariah-compliant financing and supporting the development of Islamic capital markets.
• Kuwait Finance House (Kuwait) – major Islamic banking group with an extensive international presence, including operations in Turkey and the UK.
• Maybank Islamic (Malaysia) – Maybank Group’s Islamic banking arm, providing banking and wealth management services.
• Meezan Bank (Pakistan) – leading Islamic bank offering a broad range of retail, business and corporate banking services.
• Offa (UK) – specialist Islamic property finance provider offering home purchase, buy-to-let and bridging finance.
• Standard Chartered (UK) – international banking group offering Islamic banking services through its Saadiq business across Asia, Africa and the Middle East.
• StrideUp (UK) – fintech company providing Shariah-compliant home finance through a digital platform.
• Takaful Malaysia (Malaysia) – established takaful group offering family and general protection products.
• Wahed (US) – international financial technology company providing digital Shariah-compliant investment and wealth management services.

ICAEW’s Library & Information Service can provide information on UK and Irish participants in the Islamic finance industry via its wide range of company information services. For more information, please contact our enquiry team on +44 (0)20 7920 8620 or at library@icaew.com to discuss your requirements.

• Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI)
• Association of Islamic Banking and Financial Institutions Malaysia (AIBIM)
• General Council for Islamic Banks and Financial Institutions (CIBAFI)
• Institute of Islamic Banking and Insurance (IIBI)
• International Islamic Financial Market (IIFM)
• Islamic Finance Council UK (UKIFC)
• Islamic Financial Services Board (IFSB)
• Islamic Insurance Association of London (IIAL)

The Library provides full text access to a selection of key business and reference eBooks from leading publishers. eBooks are available to logged-in ICAEW members, ACA students and other entitled users. If you are unable to access an eBook, please see our help and support or contact library@icaew.com.

• View more books and articles in our collection on Islamic finance

To find out how you can borrow books from the Library please see our guide to borrowing books.

You can obtain copies of articles or extracts of books and reports through our document supply service.