Sri Lanka Islamic finance sector projected to grow, Fitch Ratings

Fitch Ratings projects medium-term growth for Sri Lanka’s Islamic finance sector, driven by regulatory advancements, increased political commitment, and the expansion of Islamic windows within conventional banks. By the end of the first half of 2026, the sector surpassed USD 1 billion in assets.

Despite this growth, the industry is expected to remain a niche market due to the country’s demographic composition, where Muslims represent approximately 10% of the population. Other limiting factors include demand-supply imbalances, limited distribution networks, product deficiencies compared to conventional banking, and an underdeveloped ecosystem.

As of mid-2026, Islamic banking accounted for approximately 91% of total Islamic finance assets, while takaful represented 4% and non-bank financial institutions held 3%. Islamic funds and sukuk each comprised less than 1% of the market. Amana Bank PLC, the nation’s only fully fledged Islamic bank, held roughly 60% of Islamic banking assets.

The sukuk market remains in its infancy. In 2025, Vidullanka PLC issued the first and only sukuk listed on the Colombo Stock Exchange, totaling LKR 500 million (approximately USD 1.5 million). Regulatory frameworks for sukuk listings were established in 2023, and guidelines for accredited sharia scholars were released in 2024 to enhance market credibility.