ASEAN’s Islamic finance industry is on track to surpass US$1 trillion by the end of 2026, after already reaching nearly US$950 billion in assets by mid-2025. This growth cements the region as one of the largest hubs for Islamic finance globally, yet the market remains highly concentrated in just a few countries.
The sector’s expansion is primarily driven by Malaysia, Indonesia, and Brunei, which together account for the overwhelming majority of assets. Favorable demographics, strong regulatory frameworks, and deep sukuk markets provide these countries with a significant edge. Additionally, growing investment ties with the Gulf Cooperation Council (GCC) are reinforcing this momentum.
Regional Disparities
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Malaysia is ASEAN’s undisputed leader with about US$300 billion in Islamic banking assets, representing 42% of total system financing as of mid-2025. The country also dominates the sukuk market, which makes up 59% of its debt capital market.
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Indonesia holds around US$56 billion in Islamic banking assets (April 2025), equivalent to 7% of the national banking system. Sukuk represents 18% of Indonesia’s debt capital market, reflecting its growing importance.
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Brunei remains a smaller but highly Islamicized market, with US$10 billion in Islamic banking assets—a striking 63% of its total banking sector at the end of 2024.
By contrast, other ASEAN nations lag far behind:
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Thailand’s sole Islamic bank reported US$2.8 billion in assets at the end of Q1 2025.
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The Philippines has just one Islamic bank with assets of about US$20 million.
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Singapore, Vietnam, Laos, Cambodia, and Myanmar show minimal or no Islamic banking presence, limited by small Muslim populations and the absence of enabling regulations.
Sukuk and Takaful: The Twin Engines
ASEAN’s sukuk issuance stood at US$475 billion by mid-2025, representing 16% of the region’s debt capital market, with Malaysia and Indonesia contributing nearly all of it. Together, they account for 47% of the global sukuk market, underscoring their centrality in Islamic finance.
Islamic insurance (takaful) is also developing strongly in these markets:
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In Malaysia, takaful commands 21% of general insurance and 39% of family insurance.
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In Indonesia, takaful premiums represented 8.4% of the market in early 2025.
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In Brunei, takaful penetration reached nearly 48% by the end of 2024.
Drivers and Outlook
The sector’s resilience is underpinned by several key trends:
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ASEAN–GCC cooperation, with Gulf investors increasingly tapping Southeast Asia’s sukuk market.
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Government backing, as seen in recent ASEAN finance minister meetings and ASEAN–GCC summits, where Islamic finance was highlighted as a tool for infrastructure funding.
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Digital Islamic banking and fintech, particularly in Malaysia and Indonesia, offering new avenues for inclusion and growth.
Conclusion: A Two-Speed Future
While ASEAN is set to cross the US$1 trillion Islamic finance milestone, the sector’s reality is one of stark contrasts. Malaysia, Indonesia, and Brunei dominate, while the rest of the region remains either marginally involved or completely underdeveloped. For Islamic finance to truly become a pan-ASEAN story, wider regulatory adoption, fintech-driven innovation, and deeper integration with global investors—particularly from the GCC—will be essential.