Bahrain’s Islamic banking and finance industry is on track to exceed USD 100 billion by 2027, driven by rising penetration and a deepening reliance on sukuk as a sovereign funding tool, Fitch Ratings said.
As per the rating agency’s estimates, the industry was worth about USD 94 billion by the end of the first half of 2026, with Islamic banking accounting for 75% of that total and sukuk outstanding making up a further 22%. Sharia-compliant collective investment undertakings (CIUs) and takaful companies comprised the remainder.
Islamic banks have been gaining ground on their conventional counterparts, now holding around 42% of domestic banking assets, according to Fitch. Growth is being underpinned by strong public demand, a supportive regulatory environment, and broadly stable operating conditions.
“Sukuk’s share of Bahrain’s debt capital market climbed to 37% by the end of the first half of 2026, up from 35% a year earlier. Outstanding sukuk surpassed $20 billion in the period, a 16% annual rise that outstripped growth in conventional bonds. “We forecast government debt, including sukuk, to continue to grow. The net asset value of Bahrain’s sharia-compliant CIUs reached USD 2.5 billion by the end of the first quarter of 2026, up 24.5% year on year,” Fitch said.
The forecast comes even as the broader sukuk market has had a rougher year. Fitch noted separately that global sukuk issuance fell 36% year on year in the first half of 2026 across the GCC, Malaysia, Indonesia, Turkiye and Pakistan, to USD 125 billion, as volatility and rising yields tied to the Iran war weighed on activity. Global sukuk outstanding nonetheless grew 11% to USD 1.1 trillion, with the trajectory for the rest of the year hinging on whether the ceasefire holds.
In Bahrain specifically, Fitch said the Kingdom’s banking system faces limited immediate credit risk from the conflict. The Central Bank of Bahrain has already rolled out a loan deferral and liquidity support program covering all banks in the country.
The sector is also undergoing consolidation, with authorities encouraging mergers to address a market that remains highly concentrated. Fitch said this presents a challenge for both Islamic and conventional lenders, many of which are competing for a limited pool of deposits and lending opportunities in a small domestic economy.
Bahrain continues to host key Islamic finance standard-setting bodies, including the Accounting and Auditing Organization for Islamic Financial Institutions and the International Islamic Financial Market, reinforcing its role as a regional hub even as growth increasingly comes from sukuk issuance rather than balance-sheet expansion alone.