The Role of Sukuk in Islamic Capital Markets
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1. INTRODUCTION
Sukuk, commonly known as Islamic certificates or securities, play an increasingly significant
role in the ICM as it allows investors to share the profits derived from the asset or activity that
has been financed. The growth of sukuk as a financial instrument has predominantly been
driven by Muslim countries, such as Malaysia and those that make up the Gulf Cooperation
Council (GCC). The combination of a large Muslim population and a well-structured Islamic
banking system based on common principles among the Muslim community, notably Shariah
or Islamic law, has enabled these countries to issue almost all the sukuk to date in a global
market that is now worth more than USD100.0 billion a year.
Sukuk is becoming an important asset class for investors from both conventional and Islamic
backgrounds. By the same token, it is also attracting the attention of sovereign, multilateral
and corporate issuers worldwide, thus further increasing the numbers embracing the
principles of Islamic finance. The following provides a brief outlook on the sukuk market and
the objectives, methodology and overview of this publication, The Role of Sukuk in the Islamic
Capital Markets.
1.1 GLOBAL OUTLOOK OF THE SUKUK MARKET
The sukuk market remained active in 2017, bustling with new announcements and promising
indicators of progress. The industry delivered a strong performance in the first half of 2017
registering up to USD53.6 billion (Eikon-Thomson Reuters). Notably, the global sukuk market
rebounded in 2016, providing renewed confidence to market participants and setting the stage
for more sukuk issuance in 2017 and beyond.
Ground-breaking issues in 2017 include Saudi Arabia’s maiden domestic sukuk facility of
SAR17 billion (USD4.53 billion) under its Saudi Arabian Government SAR-denominated sukuk
programme, which was oversubscribed more than 3 times, with demand exceeding SAR51.0
billion. In Turkey, the government launched the sale of gold-denominated lease certificates on
2 October 2017, in an attempt to tap households’ gold holdings. The issuance utilized public
assets held by the central government, state-own enterprises and local administrations as the
underlying asset.
Africa has also made some waves in the sukuk market, with The Gambia’s issuance of a
number of short-term sukuk and Nigeria finally making its debut with a sovereign sukuk
valued at 100 billion Nigerian naira (about USD277.0 million), for road construction and
rehabilitation. More countries in Africa are anticipated to join the sukuk bandwagon in the
foreseeable future, such as Kenya and Morocco. Elsewhere, the Hong Kong government issued
another sovereign sukuk in 2017, positioning itself as one of the favored emerging sukuk
markets for issuers. Another noteworthy announcement was by the UK Treasury, which
promised to return to the sovereign sukuk market in 2019 with the reissuance of its GBP200
million inaugural sukuk (issued in 2014). This underlines the UK government’s commitment to
further developing its Islamic finance market.
Other issuances which generated much market hype include the pioneer RM250.0 million
(about USD59.0 million) green SRI sukuk from Malaysia, issued by Tadau Energy Sdn Bhd in
July 2017, followed by Quantum Solar Park Malaysia Sdn Bhd’s RM1.0 billion (about USD236.0
million) issuance in October. Given the increased emphasis on environmental protection, green