Risk Management in
Islamic Financial Instruments
9
Since 2004, Sukūk issuances have increased at a CAGR of 45.2% through the end of 2012, from
USD6.6 billion to USD131.2 billion. Despite a slump of 54.1% in 2008 due to the global
financial crisis, the growth rebounded from 2009 onwards, growing at a CAGR of 60.1%
through the end of 2012.
The sukuk market is the second largest asset class with USD $178.2 billion in 2011. Malaysia
was the first country to establish a sukuk market in 1990. Since then, others in Asia and the
GCC region have followed. Countries typically issue two types of sukuk: Ijarah and Salam/
Istisna. Some countries are beginning to employ hybrid sukuks such as convertible and
exchangeable as well ( 10 Year Framework 38-40). Islamic funds possessed USD 60 billion
assets under management in 2011, which constituted about 4.5% of the global Islamic finance
assets (GIFF 2012). Between 2008 and 2012, the volume of sukuk issuances increased by
about six-fold. However, the trend reversed between 2012 and 2013, with sukuk issuances
declining. 2012 was an exciting year for the sukuk market. The sukuk market attained the
highest volume and highest number of issues in its history. Additionally, the first Islamic Basel
III compliant Tier I structure came forth in Q3 2012 (EY 24).
1.3.3.1 Recent Regional Trends
Trends in Sub-Sahara Africa: In Sub-Sahara Africa, Gambia, Sudan, Kenya, and Egypt have
issued sukuk. In April 2012, the Egyptian Ministry of Finance announced plans to issue a
sovereign sukuk worth USD2.0 billion over the coming years. Additionally, South Africa is
expected to be the next sovereign sukuk issuer in the region.
Trends in Asia: Asia represents the most developed market for sukuk in both primary and
secondary markets. At end 2012, Malaysia remained the largest sukuk issuer with 70.5%
global market share, equivalent to USD46.8 billion, followed by Indonesia, which accounted for
7.0%, and Pakistan with 1.5%. In addition, Indonesia, Pakistan, Singapore and Brunei have also
issued sukuks.
Trends in MENA: The sukuk markets of the MENA region include a diverse range of market
players, from financial institutions to real estate developers, and construction companies to
energy producers. The market is dominated by the GCC countries, whose corporations issue in
both local and foreign currencies. As of 2012, the GCC countries have issued a total of USD92.4
billion in primary market papers. In the recent years, a number of countries in the MENA
region are looking to enter the sukuk market. Egypt has already announced plans to issue
USD2.0 billion worth of short-term sukuks, while countries like Tunisia and Libya are in the
process of amending the legislative process to support the issuance of sukuk following the
recent political uprisings.
1.4. CURRENT STATUS OF THE ISLAMIC TAKAFUL MARKET
While conventional insurance goes against Shariah, due to the elements of gharar and riba in
insurance contracts, takaful embraces Islamic principles of cooperation and mutual help.