The Future of Islamic Finance in Oman: Insights from Fitch Ratings

Oman’s Islamic finance sector is poised for a significant transformation, with projections suggesting double-digit growth by 2026. According to Fitch Ratings, this promising trajectory is underpinned by favorable economic conditions, the sustained relevance of sukuk as a vital funding mechanism, proactive government initiatives, and a rising public demand for sharia-compliant financial products.

Trends in Sukuk Issuance

In 2025, sukuk represented a staggering 60% of all US dollar debt issuance, a substantial shift from the previous year’s 94.3%. This highlights the growing acceptance and integration of sukuk within the global finance landscape, making it a preferred choice for both Islamic and conventional investors. Despite these encouraging figures, Oman continues to face structural challenges. The market lacks sufficient Islamic treasury bills and derivatives, and the domestic sukuk and bond market is still in its developmental stages. Additionally, the presence of Islamic non-bank financial institutions remains limited.

Current State of Islamic Finance in Oman

As of the end of 2025, the estimated size of Oman’s Islamic finance industry is approximately USD 36 billion. Projections indicate that this figure could rise to nearly USD 45 billion by 2026. Islamic banking assets account for about two-thirds of this total, with sukuk making up approximately 32%. However, other segments, such as takaful (Islamic insurance) and Islamic asset management, remain relatively small, collectively representing only 2.5% of the market.

Regulatory Developments and Impact

A significant milestone in this journey has been the Central Bank of Oman’s (CBO) recent approval of a regulatory framework for sharia-compliant financial institutions and leasing companies. This step marks a pivotal moment towards establishing a transparent and robust oversight mechanism. Such regulatory clarity is expected to nurture investor confidence and attract capital, which is crucial for the sector’s growth.

Growth of Islamic Banks

The market share of Islamic banks, including Islamic windows within conventional banks, saw an increase to approximately 20% of total system assets by the end of November 2025. Islamic banking assets themselves rose to USD 24.1 billion, demonstrating growth that outpaces that of conventional banking institutions. Interestingly, Islamic windows at six conventional banks accounted for more than 60% of the total Islamic banking assets. These conventional banks leverage their established networks and resources to enhance their Islamic finance offerings. The introduction of an electronic liquidity-management system by the CBO further supports Islamic banks, facilitating more efficient operations.

Economic Conditions Favoring Growth

The current business environment for both Omani Islamic and conventional banks remains favorable, bolstered by high, albeit moderating, oil prices. The Omani government’s commitment to economic diversification as part of its Vision 2040 initiative creates substantial growth opportunities across various sectors. Fitch Ratings anticipates that sector loan growth will range between 6% and 7% in 2026, driven by increased demand from both retail and corporate sectors, particularly in alignment with government expenditures on energy and infrastructure projects.

Tax Implications

Looking ahead, the proposed introduction of a 5% income tax from 2028 is anticipated to have a limited overall impact on the banking sector. However, Islamic banks, with their heightened focus on retail, could face marginally more significant effects.

Rating Upgrades & Market Dynamics

In December 2025, Fitch Ratings upgraded many Omani sukuk following a sovereign upgrade for Oman to ‘BBB-’. At that time, around USD 6.5 billion in Omani sukuk was rated, with an impressive 88% rated ‘BBB-’ and the remainder ‘BB+’, all maintaining stable outlooks with no defaults observed. Demand for sukuk continues to be buoyed by both GCC Islamic and conventional banks. Notably, the Oman Electricity Transmission Company made history by issuing the country’s first green sukuk in 2025, further diversifying the financial landscape.

Challenges in the Debt Market

Despite these positive developments, Oman’s debt capital market remains the smallest in the GCC region. Predictions suggest that the debt-to-GDP ratio will increase to 35.8% in 2025, maintaining stability until 2027. The government’s long-term objective is to reduce this ratio to approximately 30% of GDP. To achieve this, there are plans to enhance the local debt market, gradually increase domestic debt issuance, and refinance a portion of impending external debt maturities in Omani riyals.

Institutional Support for Growth

The establishment of the Supreme Sharia Supervisory Authority by the Financial Services Authority marks another significant step. This body recently reviewed a draft insurance law, reflecting the authorities’ dedication to bolstering the Islamic finance framework in Oman. However, assets under management in Islamic funds remain modest, estimated at around USD 575 million as of January 2026. The takaful segment of the market accounted for about 18% of gross direct premiums by the end of 2024, indicating room for expansion.

Contact Information for Further Insights

For those looking to explore more detailed insights into Oman’s Islamic finance landscape, Fitch Ratings professionals are available for consultation:

• Saif Shawqi, CFA, FRM

  • Director – Islamic Finance
  • Email: saif.shawqi@fitchratings.com

• Bashar Al Natoor

  • Managing Director – Global Head of Islamic Finance
  • Email: bashar.alnatoor@fitchratings.com

For media inquiries, you can reach:

• Matthew Pearson, London

  • Email: matthew.pearson@thefitchgroup.com

• Shahd Alsheikh, Riyadh

  • Email: shahd.alsheikh@thefitchgroup.com

More information can be found at Fitch Ratings.