The Islamic Financial Services Board has released its 2026 Islamic Financial Stability Report, which says the Islamic financial services industry continued to expand while new hybrid risks in Islamic banking are creating vulnerabilities that may not be fully captured by existing prudential and supervisory frameworks. Global industry assets reached about USD 4.4 trillion in 2025, with growth across banking, capital markets and insurance, stronger momentum in non-bank segments, and wider integration of Islamic finance in domestic financial systems including in newer markets in Africa and Central Asia. Headline prudential indicators remained broadly stable across most jurisdictions, but structural constraints identified in the previous edition remain a source of vulnerability. The report says new products, structures and balance-sheet configurations are increasingly mimicking conventional banking features and materially reshaping Islamic banks' risk profiles, prompting a call for capital frameworks to better capture hybrid risks, macroprudential monitoring of their scale and concentration, and stronger supervisory oversight of operational dependencies and interconnectedness. It also points to higher external risks from geopolitical tensions, market volatility and global uncertainty, which could intensify sovereign risk, tighter funding conditions and asset quality pressures, and it stresses the need for proactive risk management, stronger liquidity preparedness, more forward-looking supervision, reinforced crisis management frameworks and deeper Islamic financial markets.

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