188
Stage of sukuk
market
development
Issues and challenges Key recommendations Rationale
 Lack of secondary market
trading due to ineffective
and inefficient platforms.
 To develop an effective
trading platform with
efficient clearing
settlement systems.
and conventional bond
bonds, thereby
ensuring greater
outreach to market
players.  Lack of tax incentives that
motivate sukuk issuance
and investors to invest in
them, as opposed to
conventional bonds.
 To offer tax neutrality for
sukuk and introduce
more tax incentives (such
as withholding taxes and
deductions for issuance
costs) to facilitate a
greater flow of
investments into the
capital markets and level
the playing field between
sukuk and conventional
bonds.
 Shortage of attractive
sukuk structures that
cater to the distinct
requirements of Shariah-
based institutional
investors.
 To encourage innovation
in sukuk structures (e.g.
waqf-linked sukuk) to
entice religious
institutional investors
(e.g. waqf and hajj funds)
to tap the sukuk market.
Diversified market players on the supply and demand sides  To provide more
investment
instruments to
banks and NBFIs.
 To strengthen the
diversification of
investor bases.
 Non-
existent/inadequate
long-term issues that
fund infrastructure
projects to cater to
the needs of long-
term investors.
 To encourage SOEs and
blue-chip corporates,
particularly utilities-
backed companies (e.g.
telecommunications,
electricity, water, power)
or corporates with
infrastructure projects
(e.g. municipality
company) to issue sukuk.
 Lack of cornerstone
institutional investors.
 To enforce a mandatory
retirement/pension
scheme or national
savings strategy that will
boost the setting up of
pension funds.
Infancy
(examples of OIC
countries include
Nigeria and most
African countries
that have newly
tapped the sukuk
market)
Legal and regulatory framework  To facilitate a
smoother and
faster approval
process for sukuk
issuance.
 To simplify the
listing process for
sukuk.
 The need for a robust legal
and regulatory
framework.
 Amendment of relevant
laws (e.g. land law) to
facilitate the process of
perfecting and transfer of
legal title, thus making the
creation of mortgages less
cumbersome.
 Social discontent. As a
multi-ethnic society with
diverse religious beliefs,
minority interests or fears
based on diversity are a
source of discontent.
 Government needs to take
proactive measures in
addressing social, political
and economic challenges.