KUALA LUMPUR: While global sukuk issuance is expected to remain resilient, escalating geopolitical uncertainty in West Asia could widen the funding gap between large and small issuers, with the latter facing tougher market conditions as investors become more selective.
The impact of the conflict has so far been driven mainly by broader macroeconomic and geopolitical factors, including energy prices, inflation, trade disruptions and investor sentiment, rather than issues unique to Islamic finance.
According to the Islamic Finance Development Report (IFDI) 2026, released yesterday at the Kuala Lumpur Islamic Finance Forum or KLIFF 2026, sovereigns and major banks are likely to retain access to funding, while smaller issuers may delay their sukuk offerings until market conditions improve.
In the near term, sukuk issuance is expected to be supported by the Gulf Cooperation Council or GCC sovereigns’ growing funding requirements as their fiscal positions weaken, alongside continued strong investor demand for sukuk.
However, issuance activity is likely to be concentrated among larger sovereign and bank issuers, leaving smaller players more exposed to volatile market conditions.
Despite these challenges, the global Islamic finance industry continued to demonstrate resilience in 2025, with total assets growing 9% year-on-year to US$6.5 trillion, according to the IFDI 2026 report.
While Islamic banks remain exposed to rising living costs and strained business cash flows, Malaysia and Indonesia are better positioned to weather the fallout, supported by established Islamic finance ecosystems and domestically focused banking sectors, the report noted.
Malaysia’s Islamic finance industry is relatively resilient, supported by the domestic focus of its banking sector and its liquefied natural gas exports, although these factors do not insulate the economy from the conflict’s indirect effects.
Looking ahead, the report expects the global Islamic finance industry to grow to US$10.5 trillion by 2030, representing an average annual growth rate of 9%.
However, sustaining this expansion will require the industry to strengthen its talent pool, it stated.
