Islamic finance sector growth to slow down to 5-10% globally

The global Islamic finance industry will continue to grow in 2026, but the momentum may ease as the effects of the Middle Eastern war continue to drain regional economies and industries.

The global Islamic finance industry growth is expected to slow down to about 5%-10% this year, following an expansion of 10.2% in 2025, S&P Global Ratings said on Monday. 

The Middle East war has significantly affected the economic growth outlook in some core Islamic finance countries, reducing sukuk issuance and growth opportunities for their banking systems, the rating agency said. 

“We expect global Islamic finance industry growth to slow in 2026 before recovering in 2027, assuming a resolution of the Middle East war and the gradual normalization of oil and gas supply, trade, and transportation.”

The outlook is predicated on the assumption that the US and Iran will reach an agreement to ease the blockage of the Strait of Hormuz by end of May, resume the flow of oil and other products.  

The war has weakened the economic growth prospects of most GCC countries, which will inevitably result in lower growth opportunities for their banking systems, including Islamic banks.

Regional governments have rolled out support measures to shore up their domestic banking and financial services industries. The UAE Central Bank announced a support package for banks on March 17, which drove loan deferrals to near $1.7 billion by May 1.

Qatar also introduced a slew of measures to underpin its banking sector, including unlimited repurchase facilities in local currencies against securities held by lenders, as well as a term repo facility with three-month maturities.

Sukuk issuances by the six Gulf states increased 13.1% year-on-year in the first four months of 2026, underpinned by local currency issuance in Saudi Arabia. 

Saudi Arabia has expedited debt issuance as contends with lower oil receipts and funding requirements for its Vision 2030 projects. The kingdom raised $644 million (2.42 billion Saudi riyals) through its May sukuk issuance, scaling back monumentally from  16.946 billion Saudi riyals raised in April. 

Global sukuk issuance also rose by 20% from January through April this year, with contributions from Malaysia, Türkiye, and Indonesia, the agency said. 

“The resolution of the Middle East war will determine whether or not this trend continues, as the GCC accounted for 45% of global sukuk issuance in 2025,” added Mohamed Damak, Head of Islamic Finance at S&P Global Ratings.