The Role of Sukuk in Islamic Capital Markets
2
government, regulators and market practitioners to identify potential technical issues; their
proposed solutions are pertinent to phasing the development of the sukuk industry.
3. Taxation – Tax Neutrality and Tax Incentives
One of the first steps before introducing sukuk into a country’s financial system is the adoption
of a tax-neutral regime to match the cost competitiveness of conventional bonds. Once a tax-
neutral framework is in place, additional tax deductions and/or waivers can then be
implemented to incentivise potential issuers and investors to choose sukuk.
4. Diversified Market Players on the Supply and Demand Sides
Both supply (sell side) and demand (buy side) need to be collectively developed from
inception, to promote the dynamic shift for the successful inclusion of sukuk as an instrument
used by the public and private sectors in promoting a country’s economic health.
Only by understanding the various stages of progress of the abovementioned parameters can
countries be categorized into the matured, developing (advanced, intermediate and beginner)
or infancy brackets. Practical policy recommendations will then be proposed to elevate a
domestic sukuk market to its next phase of development. The yardsticks highlighted above are
applicable to all phases of development and are key to elevating a nascent sukuk market to
developing status, and from developing to matured.
Based on the yardsticks above, the respective case countries had then been ranked according
to sukuk market’s stages of development. Table 1 summarizes the country’s sukuk market
growth and its contribution to the global sukuk market.
Table 1: Stage of Sukuk Market Development by Case-Study Countries
Country Stage of sukuk market
development
Rationale
Malaysia Matured
Malaysia’s sukuk market has grown leaps and bound
and remain as the world leader in terms of market
share. As at end-2016, Malaysia recorded a 41.1%
(USD29.9 billion) share of total global sukuk issued. Its
classification under ‘matured’ is predicated by a healthy
pipeline of sukuk issuance by the public sector (34.6%)
and private sector (65.4%), vibrant ecosystem (e.g. tax
incentives, intermediation by NBFIs) and a strong value
proposition that puts sukuk at an advantage compared
to conventional bonds.
UAE
Developing
(Advanced)
By market share, the UAE made up 10.7% (USD8.05
billion) of total global sukuk issuance as at end-2016,
mainly from the private sector. On average, UAE ranked
second after Saudi Arabia in contributing to the supply
of GCC’s corporate sukuk issuance. Even though its
ecosystem has room for further improvement, its
healthy pipeline of corporate sukuk supports the
market’s level of competitiveness.