chapter  6
13 Pages

Sukuk

Introduction and global performance
WithRasidah Mohd-Rashid, Ahmad Hakimi Tajuddin

The most prominent topic in Islamic finance is sukuk. Sukuk reflects an advanced instrument in the Islamic finance markets which is an important factor in driving industry forward and generating growth, in which governments, investors and business are interested. ‘Sukuk’ is an Arabic word that means a “written document” or “certificate” and often refers to Islamic bonds. In fact, investors use sukuk for enhancing their portfolios, just like the other regular securities. Sukuk can be classified into two groups based on ownership, namely asset-based sukuk and asset-backed sukuk, which includes the actual asset. In recent years, the murabaha, mudaraba and wakala are more by the issuers compared to issuances that require tangible assets. According to the 2017 International Islamic Financial Market (IIFM) report on sukuk, the global issuance of sukuk increased 44 per cent, that is, from USD 60.7 billion in 2015 to USD 88.3 billion in 2016. In the first nine months of 2017, new issuances of sukuk totalled US$49.6 billion, which is 24 per cent more than US$ 40 billion issued in 2016 (IIFM, 2017). The main contributor for the steady increase in sukuk issuance is the Malaysian market. Furthermore, the sovereign and quasi-sovereign issuers led landmark issuances in 2016. The growth of sukuk not only emanated from selected countries such as the Gulf Cooperation Council (GCC) countries but also from the issuance of an international sukuk valued at USD 31.56 billion in 2016. This is among the largest sukuk issuances since the commencement of the sukuk market. This trend continued despite the slump in global economic conditions. It is a clear indication that there is growing acceptance of the sukuk product, given the high visibility, transparency and confidence towards the Islamic financial products. However, the growth of the Islamic finance industry has been affected by disagreements over the acceptability of specific features of Islamic financial products, such as sukuk. This is because there always has been a lack of consensus (ijma’) among the shariah scholars, who have diverse schools of thought (madahib) on issues related to the religion and Islamic finance, in particular leading to complexity of the sukuk structure. Hereafter, the whole chapter is dedicated to the understanding of the sukuk instrument, development and challenges of the global sukuk.