Sri Lanka Islamic finance tops $1b assets but set to stay niche

Islamic banking accounted for only 1.3% of banking system assets.

Sri Lanka’s Islamic finance industry exceeded $1b in H1 2026 and is set to continue growth in the medium term, but the industry will likely remain niche, said Fitch Ratings.

Regulatory progress, rising political will, and expanding conventional-bank participation will support the Islamic finance industry to grow over the medium term, the credit rating company said in a commentary on 4 October 2026.

Fitch said the industry will likely remain niche, however, due to the population mix, persistent demand-supply gaps, and weak operating environment.

Muslims are a minority in Sri Lanka at around 10% of the population, which Fitch said could constrain mainstream relevance.

“Limited distribution channels, product gaps compared to conventional banks, and a still-nascent Islamic finance ecosystem further stifle growth,” Fitch said.

Islamic banking accounted for only around 1.3% of banking system assets and 1.4% of deposits as of H1 2026.

Sri Lanka only has one fully-fledged Islamic bank, Amana Bank PLC, which holds around 60% of Islamic banking assets in the country. Islamic windows of conventional banks held the remaining 40% assets.

Fitch said that interest in Islamic banking is rising amongst conventional banks it rates, with some entering the segment recently.