In 2024, Islamic finance’s global assets reached over $3.6 trillion, an increase of more than 10.6% year over year.
Islamic finance, which follows rules that prohibit interest (riba), too much uncertainty (gharar), and investments in harmful industries, is growing beyond its traditional areas in the Gulf Cooperation Council (GCC) and Southeast Asia as more people care about ethical and sustainable investing.
Fuelled by technology innovation, governmental support, and a growing thirst for ethical banking, the business is spreading into non-Muslim-majority nations, with global assets expected to reach $6.7 trillion by 2027, according to LSEG data.
A flourishing marketplace
S&P Worldwide Ratings revealed that Islamic finance has expanded by more than 10.6% annually in 2024, with worldwide assets surpassing $3.6 trillion. This increase is driven by sukuk (Islamic bonds) and banking assets, which will account for 60% of worldwide Islamic finance assets in 2024. Around 81% of this rise was regionally attributed to the Gulf Cooperation Council (GCC), with Saudi Arabia alone responsible for two-thirds of it.
“The need for genuine, purpose-built solutions is rising as the number of Muslims worldwide increases quickly. These Muslims are young, tech-savvy, and have strong moral convictions. By developing truly Sharia-compliant products that are ethical, inclusive, and available to all societal groups, stakeholders have a genuine chance to take the lead,” Umer Suleman, chief risk officer at the UK-based Islamic finance company Wahed, told Forbes Middle East.
S&P Global Ratings projects that the sukuk market will issue between $190 billion and $200 billion in 2025, up from $193.4 billion in 2024. With the help of regulatory incentives like the Dubai Financial Services Authority’s fee exemptions for sustainable securities and Malaysia’s grant schemes that cover 90% of issuance costs until 2025, sustainable sukuk, which adhere to environmental, social, and governance (ESG) criteria, is expected to reach $10 billion to $12 billion in 2025, up from $11.9 billion in 2024 and $11.4 billion in 2023.
Embracing Islamic financing
With four million Muslims living there, the UK has become the centre of Islamic finance in Europe. According to Fitch Ratings, London’s strong regulatory environment and connections to GCC markets have drawn Sharia-compliant investments, with total assets valued at $10 billion by the end of 2023. With the help of companies like Clifford Chance, the UK government issued sovereign sukuk in 2021, setting a standard for other nations with non-Muslim majorities.
Australia and South Africa are also joining. After a nine-year break, South Africa returned to the sukuk market in November 2023 with the issuance of a $1.1 billion (ZAR 20.4 billion) four-tranche sovereign domestic sukuk. In 2021, the Muslim community in Australia was the target of a Sharia-compliant loan offered by National Australia Bank.
These changes demonstrate the industry’s capacity to access a variety of funding sources, which has been fuelled by the fast economic expansion of nations like Saudi Arabia and the United Arab Emirates (UAE), which have drawn substantial foreign direct investment (FDI).
Blockchain and fintech technologies are opening up new markets for Islamic financing. Fintech companies such as Wahed and IMAN are transforming access to Sharia-compliant products. With 400,000 members worldwide, Wahed is an Islamic financial company that works in the United States, United Kingdom, and UAE. With operations in more than 60 nations, IMAN provides a tailored mobile platform with the investment service IMAN Invest and the halal buy-now-pay-later (BNPL) product IMAN Pay.
Another catalyst that improves transparency and lowers transaction gharar is blockchain technology. Al Hilal Bank of the United Arab Emirates employed distributed ledger technology, widely known as the basis for the cryptocurrency Bitcoin, to sell and settle a small amount of their $500 million five-year sukuk in the secondary market in 2018. As evidence of the industry’s bright future, Islamic Coin, a Shariah-compliant cryptocurrency located in the United Arab Emirates, raised to $200 million from Alpha Blue Ocean’s ABO Digital in 2023.
Obstacles to overcome
Islamic banking still confronts challenges in spite of its expansion. Because different Sharia interpretations lead to disparities across jurisdictions, standardisation is still a problem. Although Bahrain, Qatar, and Oman have adopted standards developed by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), worldwide harmonisation remains elusive.
Due to a lack of qualified specialists, the progress is also hampered. The sector needs specialists with a specialised skill set that includes knowledge of both Sharia law and contemporary finance. While other regions lag, Malaysia has addressed this with specialist programmes at establishments such as the “International Centre for Education in Islamic Finance.”
Another difficulty is managing liquidity because Sharia forbids the use of traditional instruments like interbank loans. Islamic financial organisations’ reliance on less effective substitutes impacts scalability. Although progress is slow, the IMF’s “Interdepartmental Working Group,” which was established to address these concerns, is creating frameworks for Islamic banking regulation and liquidity instruments.
“It is crucial to encourage cross-border cooperation between institutions and regulators. To promote alignment, we need to give international standard-setters like the AAOIFI and IFSB genuine authority,” Suleman said.
“The talent gap can be closed by offering practical bridging programmes for professionals transitioning from conventional to Islamic finance—alongside new, tech-focused courses tailored to the next generation of Islamic fintechs,” he concluded.
Unlocking future potential
There are hazards associated with the global spread of Islamic finance, especially in geopolitically unstable areas like the Middle East. However, its asset-based structure provides stability since commodity murabahah and sukuk, which will have $1 trillion outstanding in 2024, are immune to changes in interest rates.
Public awareness, technology acceptance, and regulatory support are all critical to the industry’s progress. Non-Muslim-majority governments are becoming more accommodating. For example, the United Kingdom, France, Ireland, and Luxembourg have tax-neutral sukuk regimes. For audiences around the world, educational initiatives like those spearheaded by Malaysia and the UAE are demythologising Islamic finance.
As the world becomes more attuned to ethical, inclusive, and sustainable economic models, Islamic finance is poised to become a significant force beyond its traditional geographies. The alignment of its principles with global ESG priorities, combined with innovative fintech solutions and increasing cross-border cooperation, gives it a competitive edge in the evolving financial landscape.
However, to fully unlock this potential, stakeholders must address structural inefficiencies, talent shortages, and regulatory fragmentation with urgency and clarity. With proactive governance, inclusive education, and technological integration, Islamic finance can serve not only Muslim communities but also offer a compelling alternative to conventional finance for conscientious investors worldwide.
In doing so, it could transform from a niche sector to a global pillar of responsible capitalism. Ultimately, continued collaboration, innovation, and regulatory alignment will determine how effectively Islamic finance shapes a more ethical and resilient global economy.