Diversification of Islamic Financial Insturments
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entered the Sukuk market, several corporate entities from non-traditional jurisdictions
raised capital through Sukuk issuances. The number of different jurisdictions in Sukuk
issuance reached 19 in 2014 increasing from 16 in 2013.
 The entrance of United Kingdom in 2014 to the Sukuk markets has acted as a catalyst
for other non-Muslim sovereigns and corporates to enter the market. Hong Kong,
South Africa, Luxembourg, Japan’s Bank of Tokyo-Mitsubishi UFJ, and Goldman Sachs
all followed United Kingdom’s Sukuk issuance with their own.
 The Sukuk market dropped in 2015 was a drastic 35.2% to $65.9 billion from $101.8
billion in the year before. 2015 and 2016 have been challenging economic years for the
Islamic finance jurisdictions. The reasons for the challenges are summarized below:
- Exchange rate depreciation in emerging markets
- Economic slowdown globally and a depressed outlook for the future.
- Prolonged low energy prices in world markets,
- Weaker investor and consumer confidence in the global economy. There have
been recent signs of a global recovery, which are expected to rejuvenate
growth of Islamic banking globally.
- Increasing global interest rates.
Although the general reasons as highlighted above contributed to the drop in 2015 and 2016,
another major reason is the high dependency of the Sukuk industry on government issuances.
The drop was contributed mainly by the Malaysian governments’ decision of terminating any
new issuance of short-term paper, and to a lesser extent, a drop in Saudi Arabian issuance.
Sovereign Sukuk Issuances
Sovereign Sukuk issuances have contributed the major chunk to the total Sukuk markets over
the last decade. Rough estimates show that in 2012-2015, nearly 50% of the Sukuk issuances
originated from governments and were the drivers of the growth in the industry. Malaysia has
historically been the leader in sovereign Sukuk issuances, with nearly half of sovereign Sukuk
globally coming from the country. Over the last year a new entrant to the market has been
Indonesia which contributed 20% of the sovereign Sukuk. The issuances coming out of
Indonesia are expected to grow in the coming years as it embarks on an aggressive
development of its infrastructure. Although sovereign Sukuk issuances volume has been
relatively declining over the past few years, the gap has been fulfilled by quasi-sovereign
Sukuk. Malaysia has been leading the effort as government agencies have started tapping the
Sukuk market to raise capital. In 2016, nearly 80% of Sukuk issuances were quassi-sovereign.
In terms of structure of Sovereign Sukuk issuances, Ijarah Sukuk has been popular over the last
decade with almost 70% of all issuances based on ijarah contract. The Figure below gives a
snapshot of the Sovereign Sukuks by their contracts.