Fitch: Philippines Islamic finance market trails region

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May 31, 2026 | 12:00am

MANILA, Philippines — The Philippines’ Islamic finance market remains small despite recent regulatory and funding milestones, as the broader Association of Southeast Asian Nations (ASEAN) industry surpassed $1 trillion in the first quarter, according to Fitch Ratings.

In a commentary, Fitch said Islamic banking assets in the Philippines amounted to just $44 million as of end-2025, underscoring the country’s still nascent position in a regional market dominated by Malaysia, Indonesia and Brunei.

“Regulators in the Philippines are developing its nascent Islamic finance ecosystem, recently through sukuk guidelines,” Fitch said.

The Philippines issued its maiden $1-billion sovereign sukuk in 2023, which carries a BBB rating.

Fitch also noted that the Philippines now has five licensed takaful operators, or providers of Shariah-compliant insurance.

Sukuk refers to Shariah-compliant debt instruments structured around asset ownership or profit sharing rather than interest payments, while takaful is a cooperative form of insurance aligned with Islamic principles.

The assessment comes as ASEAN’s Islamic finance industry exceeded $1 trillion in the first quarter, supported by large Muslim populations, government commitments, accommodative regulation, halal economy growth and digitalization.

Fitch said development across Southeast Asia remains uneven, although stronger links with Gulf Cooperation Council countries and closer integration within ASEAN could help expand market access, draw investments and support financial inclusion.

For the Philippines, cross-border cooperation may provide additional momentum.

Fitch cited recent agreements by the United Arab Emirates with Indonesia, Malaysia and the Philippines aimed at deepening Islamic finance collaboration.

Still, the Philippines remains far behind more established regional markets. Indonesia’s Islamic banking assets reached $61 billion at end-January, while Brunei’s stood at $11 billion as of end-2025. In Malaysia, Islamic financing already accounted for 44 percent of total banking system financing by the end of last year.

Malaysia also leads ASEAN’s Islamic fund industry with around $70 billion in assets under management, while Indonesia remains one of the world’s largest sukuk issuers. Brunei, meanwhile, has the highest Islamic finance market share in most verticals, with Islamic bank assets equivalent to about 70 percent of its banking sector.

Across ASEAN, about 49 percent of Islamic finance assets consist of sukuk outstanding, followed by Islamic banking assets at 41 percent, Islamic funds’ assets under management at eight percent and takaful assets at two percent.

Fitch said nearly half of global sukuk outstanding now comes from ASEAN. Malaysia ranks first globally, while Indonesia ranks third, with most issuance denominated in local currencies.

The ratings firm added that all Fitch-rated dollar ASEAN sukuk were investment grade, or within the BBB category, as of end-April, with no defaults recorded in the past four years.

However, the credit environment has become more challenging. Fitch said 63 percent of ASEAN sukuk issuers were on negative outlooks following its revisions of the sovereign outlooks of Indonesia and the Philippines.

It also warned that geopolitical tensions, particularly the Iran conflict, could affect sovereigns and sukuk issuers through higher energy prices, heavier subsidy burdens, weaker currencies, wider credit risk premia and tighter external funding conditions.