Bahrain’s Islamic finance industry is likely to surpass $100 billion within the next three to five years, according to global credit rating agency Fitch Ratings.

This growth will be fueled by the need for diversification and funding, partly addressed through sukuk, as well as a favorable regulatory environment and ongoing mergers and acquisitions.

This aligns with Bahrain’s banking sector assets to GDP ratio, which was estimated at 516 percent in 2024, indicating a highly concentrated and competitive market that presents significant challenges for both Islamic and conventional banks.

The debt capital market is primarily made up of government-issued sukuk and bonds, with limited participation from corporations and financial institutions.

This is also reflected in the fact that as of the first three months of 2025, Bahrain’s Islamic finance industry was valued at over $80 billion, with Islamic banking assets making up 78 percent, sukuk accounting for 19.2 percent, and the remaining 2.8 percent coming from Shariah-compliant investment funds and takaful firms.

The Central Bank of Bahrain has introduced a draft netting law that includes Islamic derivatives, sukuk, digital asset derivatives, and carbon credit derivatives under qualified financial contracts — aimed at strengthening market participants’ confidence.

In June 2024, the CBB also launched a Shariah-compliant commodity Murabaha facility to help Islamic banks better manage surplus liquidity.

Earlier this month, a report from Qatar-based Bait Al Mashura Finance Consultations showed that Qatar’s Islamic finance sector continued its upward trajectory in 2024, with total assets rising 4.1 percent year on year to 683 billion Qatari riyals ($187.5 billion).