Regulatory gaps and rising demand fuel islamic banking boom in Asia

Asia’s Islamic banking sector is expanding rapidly.

Islamic banking assets are expanding across Asia, fueled by strong demand and supportive national policies, yet the sector faces pressing regulatory and awareness challenges, according to Dr. Ghiath Shabsigh, Secretary-General of the Islamic Financial Services Board (IFSB).

“Southeast Asia and South Asia, Islamic banking assets are roughly around $400 billion and rising,” noted Dr. Shabsigh. Leading the charge are Indonesia and Malaysia, with new growth emerging in Central Asia and countries like the Philippines and Thailand.

Many governments are actively integrating Islamic finance into their development agendas, however, regulatory and structural hurdles persist across Asian markets.

While conventional banking regulations apply, Islamic banking often requires specific frameworks to accommodate its unique financial principles. In some regions, regulatory adjustments remain limited, slowing Islamic banking’s full potential in supporting financial inclusion and sustainability.

One of the most significant challenges, Dr. Shabsigh emphasised, is the lack of public awareness of Islamic banking's benefits. “Awareness is very important to be spread around,” he said, pointing to its potential in advancing economic development and sustainability.

Dr. Shabsigh highlighted the board’s peer experience sharing sessions, which allow jurisdictions to exchange knowledge and improve their understanding of Islamic banking regulations.

IFSB develops standards to promote financial stability within the Islamic finance industry, providing guidelines for effective regulation and supervision. It supports international cooperation and implementation across 188 members in 58 countries through technical assistance and capacity-building initiatives.