Fitch Forecasts Growth for Islamic Finance Sector from H2 2025
Nigeria’s Islamic finance sector is poised for expansion in the second half of 2025, driven by recent regulatory reforms and successful sovereign sukuk issuances, according to Fitch Ratings.
In a non-rating action commentary, Fitch noted that the Central Bank of Nigeria’s (CBN) introduction of liquidity management tools for non-interest financial institutions, along with renewed government activity in the sukuk market, has laid the groundwork for accelerated growth in Islamic finance.
Last month, the Federal Government returned to the sukuk market after a two-year hiatus, while the CBN launched new instruments, including non-interest master repurchase agreements, asset-backed securities, and non-interest notes. These tools aim to address liquidity gaps, enhance funding flexibility, and support the credit profiles of Islamic banks.
Fitch estimates the size of Nigeria’s Islamic finance industry at approximately $4 billion as of May 2025. Sovereign sukuk accounts for the largest segment at 53.9 per cent, followed by Islamic banking assets at 45.2 per cent, with the remainder in takaful and sharia-compliant funds.
Islamic banking assets recorded a 110 per cent year-on-year growth as of end-2024, buoyed by a surge in deposits and loan issuance. Despite this strong growth, non-interest banks still held a modest 1.7 per cent share of total banking assets by end-2024, up from 1.1 per cent the previous year. The sector remains concentrated, with just five licensed non-interest banks, including Jaiz Bank Plc, which holds 38 per cent of the segment’s assets.
The May 2025 issuance of Nigeria’s eighth sovereign sukuk attracted strong investor interest, oversubscribed by seven times. Total sukuk outstanding stood at $2.2 billion as of May, although this reflected a 4 per cent year-on-year decline and represents under 2 per cent of the total debt capital market.
However, corporate and financial institution sukuk remains absent due to limited demand, complex issuance processes, and an underdeveloped market infrastructure.
Fitch said Nigeria’s Islamic finance potential is underpinned by its large Muslim population and significant unbanked demographic. Yet, the sector continues to face headwinds, including low public awareness, limited distribution channels, underdeveloped regulations, and social resistance in certain quarters.
Additionally, the CBN’s revised capital requirements announced in 2024 are expected to further shape the industry. Non-interest banks must meet higher capital thresholds through equity infusions, mergers, or licence downgrades. Jaiz Bank has already achieved compliance with minimal adjustments.
Takaful, the Islamic insurance segment, continues to hold less than 1 per cent of total insurance industry assets as of end-2024.
Fitch recently upgraded Nigeria’s sovereign rating from ‘B-’ to ‘B’, citing improved confidence in the government’s policy direction following the adoption of orthodox economic reforms in June 2023.
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