Sukuk Securities: New Ways of Debt Contracting

CHAPTER 10 Worldwide Sukuk Markets

Contemporary practices in the sukuk trade developed relatively recently, in the last two decades. Hence, the practices and markets are in the making and are not finished products. This chapter reviews the existing modern sukuk market and the developments made since its inception in the 1990s.

Sukuk securities are a subset of broader Islamic banking, investment, and finance products. According to Ernst & Young’s 2013 World Islamic Banking Competitiveness Report, a potential scenario showed that global Islamic banking assets within commercial banks would reach US$1.8 trillion in 2013 (from US$1.3 trillion in 2011), representing an average annual growth of 17 percent.

The Islamic banking growth outlook continues to be positive; Islamic banking is growing twice as fast as the much older modern banking sector in several core markets. In Saudi Arabia, the market share of Islamic banking assets is now over 50 percent, which is the highest rate of growth. Based on the current growth forecast, by 2015 Islamic financial institutions will require at least US$400 billion of short-term, credible, liquid securities to build liquidity for capital management purposes.

The demand for sukuk instruments will thus continue to grow, outpacing global supply and providing opportunities for banks to establish and expand their Islamic fixed-income advisory platforms. Including other investor classes, global sukuk demand could be in excess of US$600 billion by 2015; ...