Strong capital and liquidity positions have kept Malaysia’s Islamic finance industry resilient, amid uncertainties arising due to the Middle East conflict, said the Southeast Asian country’s Association of Islamic Banking and Financial Institutions (AIBIM).
According to the industry body, while Malaysia’s economic fundamentals remain sound, geopolitical tensions may have indirect spillover effects through higher energy prices, market volatility and potential disruptions to trade and supply chains.
“These could impact business costs, inflation, and cash flows for certain segments of the economy. The Islamic banking industry remains vigilant and ready to respond to these evolving risks,” AIBIM said, while adding that the industry players are also advancing value-based intermediation (VBI) to deliver sustainable and inclusive outcomes.
Talking about the health of Malaysia’s Islamic finance sector, as per Bank Negara Malaysia (BNM), in its 2025 annual report, noted that Islamic financial assets in the Southeast Asian country have more than doubled from USD 468 billion in 2014 to USD 954 billion in 2024, with regional peers like Singapore and the Philippines also experiencing notable growth.
According to the BNM report, building on its strong domestic foundation, Malaysia has emerged as a regional leader in Islamic finance, expanding services, fostering innovation, and supporting cross-border growth. Last year, nine participants from ASEAN used the country’s commodity trading platform, Bursa Suq Al-Sila, completing transactions valued at RM55.9 billion for the year. In fact, in Malaysia and Indonesia, sukuk has been widely used to fund the development of various infrastructure projects and green initiatives.
“More recently, Islamic finance has increasingly been channelled toward green and transition-related activities. Indonesia and Malaysia collectively contributed 45% share of the global sustainable and responsible investment and environmental, social, and governance (ESG) sukuk outstanding in 2024. This reinforces the sector’s alignment with broader ESG objectives and strengthens its role as a catalyst for sustainable development,” BNM said.
The central bank also noted that by September 2025, Malaysian players captured 82% of Asean’s Islamic banking assets, while dominating the takaful and retakaful segments with a massive 91% share. The Southeast Asian country also accounts for about 75% of total outstanding sukuk in ASEAN.
“Beyond financing, Islamic finance also plays an important role in promoting inclusive wealth distribution through instruments such as zakat, waqf and sadaqah. In Indonesia, for instance, innovative instruments like cash waqf-linked sukuk and deposits enable individuals to channel funds into social, humanitarian, and public projects,” the report noted.
“Malaysia, meanwhile, has actively leveraged a blended financing initiative known as iTekad to support entrepreneurial activities by combining banks’ financing with zakat‑based seed capital, further reinforced by capacity‑building programmes and skills training. As these communities expand their income‑generating activities, they evolve from recipients to economic contributors who help uplift others. As a result, this creates pathways for more inclusive and sustainable growth within the economy,” it concluded.