The Islamic finance industry in Bahrain is forecast to exceed $100 billion by 2027, driven by rising penetration, according to Fitch Ratings.

Fitch estimates Bahrain’s Islamic finance industry at about $94 billion by the end of the first half of 2026, driven by Islamic banking (75%) and sukuk outstanding (22%).

The remainder comprises sharia-compliant collective investment undertakings (CIUs) and takaful companies.

Growth is being driven by rising public demand, a supportive regulatory environment, broadly stable operating conditions, and sukuk’s role as a key sovereign funding tool.

Sukuk’s share in Bahrain’s debt capital market rose to 37% by the end of the first half of 202 from 35% a year ago. Sukuk surpassed $20 billion in outstanding size in the first half of 2026, up 16% year-on-year, outpacing bond growth.

“We forecast government debt, including sukuk, to continue to grow,” Fitch said.

The net asset value of sharia-compliant CIUs reached $2.5 billion as of the end of the first quarter of 2026, up 24.5% year on year.

According to Fitch, the Bahraini banking system faces limited immediate credit risk from the Iran war.

The Central Bank of Bahrain has already unveiled a loan deferral and liquidity support programme for all banks.

Bahrain’s banking sector is undergoing consolidation as authorities encourage mergers, given its concentration, which presents a challenge for both the Islamic and conventional banking sectors. Fitch stated.

(Editing by Brinda Darasha; brinda.darasha@lseg.com)