Liquidity-management instrument availability for Islamic banks has expanded across many core markets over the past decade, supporting funding needs and the investment of surplus liquidity, according to Fitch Ratings. 

However, gaps remain relative to conventional banks, more so in countries where Islamic banks remain niche and developing. The Iran war has also reinforced the importance of effective Islamic liquidity management, it stated.

Many GCC Islamic banks have expanded their funding toolkits through certificates of deposits, Islamic syndications, and private placements. Islamic repurchase agreement (repo) is gaining momentum in several markets, supported by Islamic banks’ holdings of sovereign sukuk which have expanded across the GCC and ASEAN in recent years and serve as eligible repo collateral.

However, lack of standardisation remains a challenge. The International Islamic Financial Market and the International Capital Market Association announced plans to develop standardised Islamic repo documentation, which could reduce operational costs and sharia-related complexities. Fitch also notes the first Islamic repo transaction executed on blockchain by Saudi Awwal Bank (A-/Stable).

Central bank Islamic liquidity facilities are offered in most core markets, including GCC countries, Malaysia, Turkiye, Indonesia, Pakistan, Bangladesh, and Tunisia, said the top ratings agency. 

Since the war began, some GCC central banks have also introduced stimulus packages and loan-deferral programmes, including those for Islamic banks. However, these sharia-compliant facilities, which could help avert a liquidity crunch, are lacking in markets such as Morocco, Egypt, and Kazakhstan, it stated.

Islamic interbank markets are shallower than conventional markets, particularly in countries with few Islamic banks. Differences in sharia contract acceptance can also create obstacles. 

For example, in Indonesia, where regulators do not permit tawarruq-based contracts, Islamic banks face limitations in conducting interbank transactions with GCC Islamic banks that rely on tawarruq. In some markets, such as Oman, regulations prevent Islamic banks from placing funds with conventional banks, limiting counterparty choice. Bangladesh’s central bank plans to launch a dedicated Islamic interbank money market amid market gaps.

Wider sovereign sukuk availability grants Islamic banks avenues to invest excess liquidity in high-quality liquid assets. Sukuk accounted for significant shares of debt capital market outstanding in the GCC (42%), Malaysia (59%), Indonesia (18%) and Turkiye (8%) as of end-1H26. Markets such as Egypt, Bangladesh, and Algeria are also progressing, and recently began issuing sukuk. The government of Pakistan’s hybrid-sukuk structure adoption in 2026 could enable more sukuk supply.

While medium-term sukuk are more widely available, short-term sukuk remain absent in most GCC countries, Jordan, Nigeria, and other markets, constraining Islamic banks’ liquidity-management options. 

Only 3% of Fitch-rated sukuk have tenors of up to one year, mainly International Islamic Liquidity Management 2 SA’s asset-backed commercial paper programme (F1sf), stated Fitch Ratings.

In some markets like Jordan, Islamic banks do not earn any return on balances held with the central bank. The Bank of England expanded its Alternative Liquidity Facility size in 2025 to support UK Islamic banks’ liquidity management, it added.

Managing liquidity and funding constraints was ranked the most significant challenge facing Islamic financial institutions in Fitch's Islamic Finance Survey 2026, a position it has held for several years. 

Weak access to liquidity due to shallow markets or regulatory policies is likely to have a negative effect on Fitch's assessment of an Islamic bank's funding and liquidity and Viability Rating, it added.