Because Hitler (or to be precise, the Third Reich) was cynically pragmatist. They had no qualms about enlisting whoever might help them to achieve their goals and they were more than happy to "extend" their racial policy to include them.

As for the Croats and Bosnian Muslims... The Croatian Ustashe regime in the Nazi-puppet state of Croatia began its life as a relatively small but fanatical separatist movement in the Kingdom of Yugoslavia. Its initial sponsors were Italy and Hungary, but as late as 1938, Nazi Germany armed and sponsored them. The Nazis needed Ustashes to supress the Serbian influence in Yugoslavia. The Nazis (correctly) assumed that the majority Serbian sentiment was anti-Nazi and, after the 1941 occupation and creation of the Independent State of Croatia, they allowed the Ustashes to organise a campaign of ethnic cleansing which took the lives of hundreds of thousands of Serbs, Jews and Roma.

The Third Reich officially treated Croats, a Slavic nation with Slavic language, as a Germanic nation. While this made little or no sense, it was a convenient "explanation" for the alliance with Ustashes.

However, the Bosnian Muslims were in a peculiar position, due to strong religious identity, but at the time relatively undeveloped national identity (some considered themselves to be Turks, others to be muslim Serbs). Due to strong Ustashe propaganda claiming the Bosnian Muslims were simply "Croats gone astray", some joined the Ustashe militia (Independent State of Croatia included the territory of Bosnia). For those Bosnian Muslims who did not and would not identify as Croats, the Nazis came up with a solution - the SS Handžar division. That's right, a Muslim Waffen SS, complete with an imam.

The same concept was used to recruit Kosovo Albanians to fight against the partisans - this time, it was named SS Skenderbeg.

Oddly enough, the concept of "Aryanship" was not expanded to include the Bosnian or Albanian SS.