S&P Global Ratings expects growth in the global Islamic finance industry to slow to between 5% and 10% in 2026, down from 10.2% in 2025. The forecast comes from its report Islamic Finance 2026-2027: Navigating Rough Waters, published in May 2026, which links the slowdown mainly to the Middle East war and its effect on the Gulf economies at the core of the industry.
What S&P expects for 2026
According to S&P, the conflict “has significantly affected the economic growth outlook in some core Islamic finance countries.” In those markets it has reduced sukuk issuance and narrowed growth opportunities for banking systems, Islamic lenders included.
Mohamed Damak, head of Islamic finance at S&P Global Ratings, put it plainly: “We expect the growth of the global Islamic finance industry to slow in 2026.” He added that “the resolution of the Middle East war will determine whether or not this trend continues.”
Key figures from the report
- Industry growth in 2025: 10.2%.
- Forecast for 2026: about 5% to 10%.
- Global sukuk issuance, January to April 2026: up 20% year on year, supported by Saudi Arabia, Malaysia, Türkiye and Indonesia.
- GCC sukuk issuance, same period: up 13.1%, driven mainly by local-currency issuance in Saudi Arabia.
- GCC share of global sukuk issuance in 2025: 45%.
Source for the figures above: S&P Global Ratings, as reported by Khaleej Times.
Why the Gulf carries so much weight
Islamic finance is valued at more than $5 trillion globally, and Islamic banking accounts for over 70% of it, according to Islamic Financial Services Board data cited in the coverage. The largest markets are Saudi Arabia, Iran, the UAE, Malaysia and Kuwait. When Gulf economies slow, the effect shows up quickly in global totals.
S&P points to several ways the conflict feeds through. Disruption to oil flows around the Strait of Hormuz weighs on trade, transport and investor sentiment. Governments and companies are delaying investment, which slows credit growth at GCC Islamic banks. Demand for infrastructure and real estate financing, two of the main engines of Islamic banking growth in recent years, is also softer. Prolonged oil volatility adds inflation, fiscal uncertainty and higher funding costs to the mix.
What could soften the slowdown
The outlook is not one-directional. Higher oil prices have improved liquidity in some Gulf markets, and GCC banks entered this period well capitalised, with solid liquidity buffers and government support, according to IMF assessments referenced in the same coverage. Sukuk issuance also kept rising in the first four months of 2026 despite the conflict, which suggests issuers and investors have not stepped back from the market.
The base case and the road to 2027
When the report was published in May, S&P’s base case assumed a US-Iran agreement that would allow meaningful oil and petroleum product flows through the Strait of Hormuz to resume by the end of that month, with intermittent disruptions still possible. A recovery in 2027 depends on oil, gas, trade and transport flows gradually returning to normal.
What to watch
The report is a reminder of how concentrated Islamic finance still is. Malaysia, Türkiye and Indonesia helped sustain sukuk activity in early 2026, but the GCC remains the swing factor for global growth. For investors, issuers and bankers following the sector into 2027, the useful indicators are Gulf credit growth, sovereign sukuk calendars in Saudi Arabia and the UAE, and how quickly regional shipping and energy routes recover.
Related reading: the IFSB’s Islamic Financial Stability Report 2026, Mordor Intelligence’s Islamic finance market forecast to 2031 and our guide to investing in sukuk.
FAQ
S&P Global Ratings expects growth of about 5% to 10% in 2026, down from 10.2% in 2025.
S&P links the slowdown mainly to the Middle East war and its effect on Gulf economies, which are the core of the industry.
Islamic Finance 2026-2027: Navigating Rough Waters, published in May 2026.
