Arab Finance: Fitch Ratings estimated the value of Egypt’s Islamic finance industry at over $40 billion at the end of the first half (H1) of 2026, expecting Gulf investment, sovereign funding needs, economic diversification, and regulatory reforms to support further growth in H2 2026 and 2027, the agency said in a non-rating action commentary.

Islamic banking accounted for 47% of the industry, followed by outstanding Islamic syndicated financing at 40% and sukuk at 9%. Takaful and Sharia-compliant investment funds made up the remainder.

Egypt has emerged as Africa’s largest sukuk market and the world’s third-largest market for Islamic syndicated financing, supported by demand from Gulf Cooperation Council (GCC) investors. GCC institutions participate through sukuk investments, Islamic syndicated facilities, and ownership stakes in Egyptian Islamic banks.

The country’s outstanding sukuk reached $3.5 billion at the end of H1 2026, rising by about 40% year on year (YoY). Although Egypt only issued its first corporate sukuk in 2020 and entered the sovereign market in 2023, it has gradually moved toward more regular issuance.

Egypt issued its first local-currency sovereign sukuk in 2025 and continued tapping the market during H1 2026. The issuances have helped address demand among Egyptian Islamic banks, which have limited options for Sharia-compliant investments.

Kuwait Finance House (KFH), for example, fully subscribed to Egypt’s $1 billion sovereign dollar-denominated sukuk in 2025. All of Egypt’s outstanding US dollar sukuk carry a “B” rating, with the sovereign on a Stable Outlook.

Egypt is also preparing its first tax sukuk, which would provide tax-exempt returns and could attract a wider pool of investors. Fitch said the instrument’s pricing, credit implications, and fiscal impact would depend on its final structure and market reception.

Despite holding Africa’s second-largest debt capital market, with about $300 billion outstanding as of August 2026, sukuk represent only 1% of Egypt’s total, while conventional bonds account for the remainder.

Fitch expects Egypt’s general government debt to decline to 77% of gross domestic product (GDP) by the end of the fiscal year (FY) 2026/2027, compared with 81% at the end of fiscal year 2025. The projected decline could temper sukuk issuance and Islamic syndicated financing.

Outstanding Islamic syndicated financing in Egypt totaled $16 billion at the end of H1 2026, equivalent to 7% of the global market and trailing only Saudi Arabia and the UAE. These facilities represented 25% of all syndicated loans outstanding in Egypt.

Financing extended to Egypt by the Saudi Arabia-headquartered Islamic Development Bank reached about $30 billion.

Islamic banking is also expanding, although it retains a relatively limited share of Egypt’s broader banking industry. The country had four fully fledged Islamic banks with combined assets exceeding $18.6 billion at the end of the first quarter of 2026, while about 11 conventional banks provided Islamic banking services.

The 2024 conversion of Ahli United Bank Egypt into Kuwait Finance House Egypt (KFH-Egypt) increased competition in the segment. All four fully fledged Islamic banks have significant GCC ownership.

Still, Islamic banks represented about 5% of Egypt’s banking-sector assets in 2025, up from 4% in 2021. Fitch identified limited public awareness, confidence, and sensitivity to Sharia considerations in financial decisions as constraints, despite Egypt’s early role in Islamic banking during the 1960s.

The industry also faces regulatory gaps, a narrower range of products than conventional banks, underdeveloped branch and digital networks, and limited Islamic liquidity-management instruments. Fitch also pointed to the absence of a clear government strategy for developing the sector.

Low banking penetration nevertheless leaves room for expansion. Only 43.1% of Egyptians aged 15 and older held an account with a financial institution or mobile money provider in 2024, according to World Bank data.

Takaful has established a larger presence, accounting for 53% of total insurance premiums collected in 2025, compared with 13.2% in 2024, according to Financial Regulatory Authority (FRA) data. That share exceeded the corresponding levels in Qatar, Bahrain, Jordan, and the UAE.

Assets under management by Sharia-compliant investment funds, meanwhile, reached EGP 11.5 billion, equivalent to $228 million, at the end of the first nine months of 2025.