The Role of Sukuk in Islamic Capital Markets
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EXECUTIVE SUMMARY
Since the advent of Islamic finance, Islamic capital markets (ICMs) have gained worldwide
attention in financing the needs of the public and private sectors. Sukuk has been the financial
tool used to propel the success of ICMs. Its importance as an intermediary in channeling funds
towards building a country’s economy has brought Islamic finance to the fore of the
international financial markets. So much so that global financial centres (e.g. the UK, Hong
Kong and Luxembourg) have all included sukuk issuance as part of their value proposition.
This publication, The Role of Sukuk in Islamic Capital Markets, is a comprehensive analysis of
the part played by sukuk in the development of a country’s economy. Comparative
assessments have been made on matured and developing ICMs, as well as those in their
infancy. Ultimately, the lessons gleaned from a country’s progress in nurturing its Islamic
financial arena will be used as a benchmark to accelerate or jump-start another country’s
developmental efforts.
Our analysis focuses on the issues and challenges related to structure, issuance (supply or sell
side) and investment (demand or buy side) when comparing a domestic sukuk market’s state
of development against its neighbouring peers or geographical groupings. Under these core
headings, several yardsticks have been used to determine the level of the sukuk market’s
inclusion in its domicile financial system, and the progress of sukuk as a financing tool for
economic development. These yardsticks have then been deployed towards a Development
Stage Matrix, in which the general findings are highlighted below:
1. Legal and Regulatory Framework
Whether a country adopts the common law or civil law system has a bearing on the initial
stage of sukuk development. Countries that use the common law system require fewer
legislative changes due to their acknowledgment of trust, beneficial interest or usufruct, which
determines the essence of Shariah contracts. The adoption of a centralized Shariah governance
framework by some countries further strengthens the argument that harmonization of Shariah
opinions is important in building a stronger pillar to support the sustainability of sukuk
issuance.
A comprehensive framework and guidelines to govern the operations of an ICM and the
products it promotes to the financial industry facilitate the move towards international best
practices, corporate governance and investor protection. Core sukuk markets consist of
developing nations; as these countries move to align their domestic financial markets to the
international standards adopted by leading financial centres, sukuk will gain firmer ground in
attracting the wealth of global investors.
2. Market and Infrastructure Development
Market and infrastructure development refers to the diversification of sukuk structures and
products, the establishment of trading platforms, the ease of listing and approval processes,
the Islamic money market, and commercial elements (e.g. cost competitiveness, turnaround
time). The diversity of sukuk structures and products that promote liquidity management and
the efficiency of asset utilization to meet Shariah requirements are among the factors to be
considered in promoting the growth of a sukuk market. Hence the combined efforts of the