Bahrain’s Islamic finance industry is projected to surpass $100 billion by 2027, propelled by increasing market penetration, according to Fitch Ratings. The rating agency estimates the country’s Sharia-compliant sector reached approximately $94 billion by the end of the first half of 2026. This total is largely dominated by Islamic banking assets, which account for 75% of the market, and outstanding sukuk, which make up 22%. The remaining share consists of Sharia-compliant collective investment undertakings (CIUs) and takaful (Islamic insurance) firms.
This expansion is being fueled by rising public demand, a supportive regulatory framework, stable operational conditions, and the critical role sukuk plays in government financing. By the end of the first half of 2026, sukuk’s share of Bahrain’s overall debt capital market climbed to 37%, up from 35% the previous year. The outstanding volume of sukuk grew 16% year-on-year to exceed $20 billion, outperforming conventional bond growth, with Fitch projecting continued growth in overall government debt and sukuk issuance. Additionally, the net asset value of Sharia-compliant CIUs surged 24.5% year-on-year to reach $2.5 billion by the end of the first quarter of 2026.
Fitch also noted that Bahrain’s banking system currently faces limited immediate credit risks from the conflict with Iran, particularly as the Central Bank of Bahrain has introduced liquidity support and loan deferral programs to protect financial institutions. Meanwhile, the broader banking sector is undergoing a wave of consolidation. Local authorities are actively encouraging mergers to address high market concentration, a structural challenge that continues to impact both conventional and Islamic financial institutions.
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