Fitch flags gradual crypto growth in Islamic finance

KUALA LUMPUR: Fitch Ratings expects cryptocurrency offerings in Islamic finance to gradually develop in some jurisdictions including Malaysia.

The firm said regulatory strategies, enabling regulations and national sharia rulings for some cases support the development of cryptocurrency in the Islamic finance space.

In Malaysia, the firm said the Securities Commission's Shariah Advisory Council declared several cryptocurrencies sharia-compliant between 2020 and the first half of 2026 (1H FY26), including Bitcoin, Ethereum, Ripple and Stellar.

Ten digital asset players, including exchanges, custodians, and initial exchange offering operators, were regulated by the SC at end-1H FY26.

"The total trading value on regulated digital asset exchanges increased by 23 per cent year-on-year to over US$4 billion in 2025, but it is still just 2.5 per cent of domestic equity market value traded.

"Bank participation remains largely restricted to services for registered operators," it said.

However, adoption outside some markets is likely to remain uneven.

This reflects divergent religious interpretations, a lack of guidance from global Islamic finance standard-setting bodies and still-cautious bank participation.

"Broader digital-asset infrastructure and tokenisation initiatives may develop more readily than cryptocurrency trading in some markets," it added.

Fitch said the United Arab Emirates (UAE) is emerging as a global hub for virtual assets.

Transaction volumes across entities regulated by Dubai's Virtual Assets Regulatory Authority reached nearly US$680 billion in 2025, while assets under management exceeded US$2.5 billion.

It had licensed over 55 virtual asset service providers as of September 2026.

In 2025, the Higher Shariah Authority of the Central Bank of the UAE deemed dealing in bitcoin permissible.

Since then, a small number of the UAE conventional and Islamic banks have begun offering cryptocurrency brokerage and custody services, Fitch said.

This places the kingdom ahead of most core Islamic finance markets in direct bank participation.

Bahrain is also developing its crypto-asset ecosystem.

As of September 2026, it hosted nine crypto-asset service providers, several of them sharia-compliant.

The Central Bank of Bahrain licensed the country's first stablecoin issuer in June.

Qatar's digital-asset infrastructure has progressed more visibly than its cryptocurrency offerings.

This suggests blockchain-based applications for sharia-compliant, asset-backed finance may gain traction sooner than bank-led cryptocurrency activity.

By contrast, Saudi Arabia has not enacted legislation governing cryptocurrencies.

"Sharia views on cryptocurrencies are mixed. Some prominent sharia scholars consider them non-compliant with sharia principles, while others deem them permissible subject to certain conditions," Fitch said.

"As the market evolves, new types of cryptocurrencies also continue to emerge, with differing views on their sharia compliance.

"The absence of formal guidance from the Accounting and Auditing Organisation for Islamic Financial Institutions and the Islamic Financial Services Board also limits harmonisation across jurisdictions," it added.