gif Report on Sukuk
Global Sukuk Market: Where are we and
where are we heading?
Author: Andre Jackson, Global Islamic Finance Magazine Editorial Team, United Kingdom
Abstract: Global Sukuk Market discusses the Sukuk industry’s progression in the global market and its attraction to both Non Muslims and Muslims alike. Sukuk structures and methods of increasing popularity amongst Non Muslims are discussed with the view of looking to progression in the Sukuk market in the future.
Keyword: Islamic Finance, Sukuk, Murahaba, Islamic bond, Islamic financial market instruments, capital market Fast attracting Muslims & non-Mus-
lims alike The global Islamic financial sector has wit- nessed an encouraging growth over the last decade and is currently estimated to be at around US$1trillion. It is predicted to be the world’s fastest-growing financial sector for the coming years with an estimated global potential of US$4trillion.
Sukuk’s have turned out to be an important driver to raise finance under the Islamic mode of financing. In today’s business prac- tice, the term Sukuk means a claim similar to that represented by a trust certificate. In essence, the Sukuk is a financial instrument that sits above a Shari’ah-compliant under- lying structure which generates an income for the holder of the instrument. Islamic fi-
12 Global Islamic Finance October 2010
nance has many qualities that could lend themselves to securitization as a means of raising funds. Shari’ah compliant tools must have asset-driven returns for example, which is a notable feature of securitization.
Sukuk structures There are many structures that can gen- erate the revenue paid to Sukuk holders. Most of the Sukuk issuances to date have been wholly asset-based rather than asset- backed. In an asset-based Sukuk, the Sukuk holders rely for payment on the company seeking to raise finance (the originator), in the same way as they would under a corpo- rate bond issue. In an asset-backed Sukuk, the Sukuk holders rely on the assets of the Sukuk for security. The issuance of convert- ible and exchangeable sukuks are more
recent developments. The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) is mainly responsible for formulating and implementing international Islamic finance standards in the market.
There are about 14 different types of Su- kuk described as permissible in the AAOIFI Shari’ah standards on Sukuk. Currently the AAOIFI, based in Bahrain, has issued 68 standards and is supported by more than 160 institutional members.
In terms of the types of Sukuks issued, Su- kuk al Ijara was the most popular amongst corporate and governments wanting to raise funds in the Islamic debt markets. Sukuk al Ijara issues contributed 43.6 percent of total issues, followed by Sukuk al Musharaka at
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