KUALA LUMPUR: Malaysia’s Islamic finance industry is evolving beyond traditional banking to play a wider role in people’s lives and the economy, from helping microentrepreneurs build sustainable businesses to enabling small and medium enterprises (SMEs) to enter global markets.
Over more than four decades, the industry has grown from a niche segment into a comprehensive financial ecosystem supporting businesses, households and the country’s economic development.
Bank Negara Malaysia (BNM) governor Datuk Seri Abdul Rasheed Ghaffour said Islamic finance accounted for 48% of Malaysia’s total financial assets, with its share expected to surpass 50% within the next few years.
“The industry contributed RM160bil in issuance of sukuk to fund the real economic sector in 2025. Islamic banks’ business financing grew by 9.7%, supporting businesses across various economic sectors, while MSME microfinancing growth stood at 13.3%,” he told Bernama.
The governor also noted that Malaysia’s position as the world’s most developed Islamic finance market for the 14th consecutive year, as recognised in the Islamic Finance Development Report (IFDI) 2026, reflects four decades of sustained efforts in developing a comprehensive and progressive Islamic financial ecosystem.
Going forward, BNM will continue working with the industry and its partners to advance innovation with purpose, digitalisation and sustainable finance.
Recounting the industry’s evolution with enthusiasm, Abdul Rasheed outlined four key phases in Islamic finance development, which are foundation-building from 1983 to 2000, mainstreaming from 2001 to 2010, diversification and innovation from 2011 to 2021 and advancing value-based finance from 2022 until today.
He explained that the introduction of Islamic banking windows enabled conventional banks to offer syariah-compliant financial services, while the development of the Islamic interbank money market also provided the infrastructure needed to support the industry’s growth.
“These developments laid the foundation for Islamic banking to grow from a niche offering into a mainstream component of Malaysia’s financial system,” he said.
The country also remains a key player in Asean’s Islamic finance market, with Malaysian institutions accounting for about 82% of the region’s Islamic banking assets and 91% of its takaful business.
Abdul Rasheed said Islamic finance offered a broader range of financing solutions through diverse contracts, including profit-sharing and partnership arrangements, which allow for greater risk-sharing.
He said both conventional and Islamic finance served a similar economic objective of mobilising savings and financing businesses, but Islamic finance is distinguished by syariah principles that require financing to support real economic activities and create value for borrowers, shareholders and the wider economy.
“Islamic finance also emphasises fairness, transparency, trust and good governance, while its diverse contractual structures enable financial institutions to offer solutions beyond conventional lending, including investment accounts with different risk-return profiles,” he said.
The governor said takaful also had a distinct structure, with a clear separation between the operator and participants, who collectively owned the risk fund.
