The heightened volatility in commodity prices, profit rates, and exchange rates due to the Iran war has reinforced the importance of Islamic derivatives for risk management, Fitch Ratings said in its latest report.
“The majority of rated Islamic banks have deployed Islamic derivatives, but adoption is rare amongst rated Islamic insurance companies. Islamic securitisation and sukuk issuances are beginning to embed Islamic derivatives into their structures. However, the Islamic derivatives market still lags conventional derivatives in most core Islamic finance markets. There is a lack of sharia-compliant alternatives to credit, equity, commodity, futures, and digital asset derivatives,” the rating agency noted.
Key barriers to the wider adoption of Islamic derivatives include sharia restrictions, limited standardisation, infrastructure gaps, awareness gaps, and still-evolving financial systems in many OIC (Organisation of Islamic Cooperation) countries.
“The conventional derivatives market is also underdeveloped across most OIC countries compared to other regions. The combined turnover of over-the-counter (OTC) interest-rate derivatives in Saudi Arabia, the UAE, Bahrain, Malaysia, Indonesia, and Türkiye accounted for less than 1% of global volumes in April 2025 (BIS data),” Fitch noted further.
About 75% of Fitch-rated Islamic banks used or offered Islamic derivatives in 2025–1Q26. The list included 100% adoption at rated GCC Islamic banks. These financial products are primarily profit-rate swaps, forward foreign-exchange contracts, and cross-currency swaps, and, in some cases, commodity hedging solutions.
“These instruments perform similar economic functions as conventional derivatives, supporting risk mitigation and potentially enhancing credit profiles. The remaining rated Islamic banks that did not actively deploy derivatives were mainly in Indonesia, Jordan, Iraq, Nigeria, and Tunisia,” Fitch observed.
When it comes to deploying Islamic derivatives, Malaysia has created its niche space as one of the most advanced Islamic banking and financial jurisdictions, offering both OTC and exchange-traded derivatives. However, conventional derivatives still dominate the market, with Fitch estimating that only 1% of such products were Islamic in 2025.
“In GCC countries (excluding Oman), OTC Islamic derivatives are more accessible, while exchange-traded Islamic derivatives are largely absent or nascent. No derivatives were traded on the Saudi Exchange in 1Q26 and most of 2025, the region’s largest stock exchange, despite their introduction in 2020,” Fitch noted further.
The UAE has become the leader among emerging markets in terms of global OTC interest-rate derivative turnover. Volumes reached a daily average of USD 68 billion in 2025, up sharply from USD 4 billion in 2022 (including the Dubai Financial Services Authority), positioning the Gulf major as the 11th largest globally. In April 2026, Dubai’s Virtual Assets Regulatory Authority further advanced the market by announcing a regulatory framework for exchange-traded derivatives in virtual assets.