The Islamic finance industry in Southeast Asia should surpass $1 trillion by the end of 2026, building on its current size of nearly $950 billion by mid-2025, Fitch Ratings said in a recent release.

The region's Islamic finance market is responsible for about a quarter of the world's total, Fitch said.

The growth is primarily driven by Malaysia, Indonesia, and Brunei, which benefit from large Muslim populations, supportive regulations, and growing ties with the Gulf Cooperation Council (GCC) countries.

However, Islamic finance's presence is limited and underdeveloped in other Southeast Asian countries like Singapore, the Philippines, Thailand, Vietnam, Laos, Cambodia, and Myanmar due to a narrower Muslim base and the absence of regulatory frameworks, according to Fitch.

Outstanding sukuk hit $475 billion by mid-2025, with Malaysia and Indonesia accounting for 47% of the global market, Fitch said.

Malaysia leads the region's Islamic banking, funds, and takaful (Islamic insurance) segments, with Indonesia and Brunei also having established markets.

Meanwhile, the Philippines has seen recent capitalization requirement changes that have prompted two new entrants into Islamic banking, Fitch said.