Fitch Ratings-Dubai\/Jakarta: Fitch Ratings expects Sri Lanka\u2019s Islamic finance industry to grow over the medium term, supported by regulatory progress, rising political will, and expanding conventional-bank participation through Islamic windows. <\/p>\n
Sri Lanka\u2019s Islamic finance industry exceeded USD1 billion at end-1H26. <\/p>\n
Sri Lanka has one of the highest Islamic finance penetration rates among countries with Muslim-minority populations. <\/p>\n
However, the industry will likely remain niche due to the population mix, persistent demand-supply gaps, and a weak operating environment.<\/p>\n
Muslims are a minority at around 10% of the population, which could constrain mainstream relevance. <\/p>\n
Limited distribution channels, product gaps compared to conventional banks, and a still-nascent Islamic finance ecosystem further stifle growth. <\/p>\n
Islamic banking accounted for about 91% of Islamic finance industry assets, followed by takaful at around 4% and non-bank financial institutions at around 3%. <\/p>\n
Islamic funds and sukuk each represented less than 1% of the total.<\/p>\n
Fitch rated the first and only sukuk listed on the Colombo Stock Exchange (CSE), issued in 2025 by Vidullanka PLC (A+(lka)\/Stable), amounting to LKR500 million (USD1.5 million). <\/p>\n
The sukuk market remains nascent. The Securities and Exchange Commission of Sri Lanka (SEC) and the CSE developed a regulatory framework for listing sukuk, approved in 2023. <\/p>\n
In 2024, the SEC published guidelines for accredited sharia scholars entrusted with certifying sharia compliance, supporting standard-setting and market credibility. <\/p>\n
Limited access to international sukuk investors and a relatively small domestic sharia-sensitive investor base may have constrained further issuance.<\/p>\n
Amana Bank PLC (BBB-(lka)\/Stable), Sri Lanka\u2019s only fully fledged Islamic bank, held around 60% of Islamic banking assets. <\/p>\n
Islamic windows of conventional banks held the remainder. <\/p>\n
Islamic banking remains small in Sri Lanka, accounting for around 1.3% of banking system assets and 1.4% of deposits at end-1H26, up from 1.0% and 1.2%, respectively, in 2024.<\/p>\n
Amana Bank\u2019s assets increased by 7% yoy to around LKR215 billion (USD641 million) at end-1H26, while deposits rose by 6.5% to around LKR180.3 billion (USD537 million). <\/p>\n
The Islamic Development Bank (AAA\/Stable) and IB Growth Fund together hold a 28.2% stake in the bank. <\/p>\n
Bank Islam Malaysia Berhad is its fifth-largest shareholder. <\/p>\n
These shareholders support knowledge transfer from established Islamic finance institutions. <\/p>\n
Amana Bank is covered by the Sri Lanka Deposit Insurance Scheme.<\/p>\n
Amana Bank does not invest in government securities due to sharia restrictions, unlike peers. <\/p>\n
The introduction of sharia-compliant alternatives to treasury instruments would further strengthen Islamic banking and provide additional options for liquidity management. <\/p>\n
The bank parks excess liquidity in interbank placements, resulting in exposure to the sovereign\u2019s credit profile through systemic linkages.<\/p>\n
Interest in Islamic banking is rising among many Fitch-rated conventional banks, some of which have operated Islamic windows for over a decade, while others entered the segment recently. <\/p>\n
Total assets of Islamic windows collectively rose by around 26% year to date in 1H26, outpacing Amana Bank.<\/p>\n
Amana Takaful PLC and Amana Takaful Life PLC (both not rated) are Sri Lanka\u2019s only full-fledged takaful operators. <\/p>\n
Their combined assets grew by around 32% yoy by end-2025, outpacing the insurance industry\u2019s 18% growth. <\/p>\n
However, their market presence remained limited, with just over 1% of the insurance sector\u2019s total assets and about 2% of gross written premiums at end-2025. <\/p>\n
Several other insurance companies offer takaful products through dedicated takaful arms, supporting the segment\u2019s gradual expansion.<\/p>\n
Sri Lanka\u2019s Islamic fund assets under management exceeded USD5.5 million in early August, having increased by around 35% from the beginning of the year.<\/p>","protected":false},"excerpt":{"rendered":"
Fitch Ratings-Dubai\/Jakarta: Fitch Ratings expects Sri Lanka\u2019s Islamic finance industry to grow over the medium term, supported by regulatory progress, rising political will, and expanding conventional-bank participation through Islamic windows. […]<\/p>\n","protected":false},"author":1,"featured_media":7,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-87","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorised"],"_links":{"self":[{"href":"https:\/\/sripuwath.com\/index.php\/wp-json\/wp\/v2\/posts\/87","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/sripuwath.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/sripuwath.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/sripuwath.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/sripuwath.com\/index.php\/wp-json\/wp\/v2\/comments?post=87"}],"version-history":[{"count":0,"href":"https:\/\/sripuwath.com\/index.php\/wp-json\/wp\/v2\/posts\/87\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/sripuwath.com\/index.php\/wp-json\/wp\/v2\/media\/7"}],"wp:attachment":[{"href":"https:\/\/sripuwath.com\/index.php\/wp-json\/wp\/v2\/media?parent=87"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/sripuwath.com\/index.php\/wp-json\/wp\/v2\/categories?post=87"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/sripuwath.com\/index.php\/wp-json\/wp\/v2\/tags?post=87"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}