Sukuk are Sharia-compliant financial certificates that represent undivided ownership interests in tangible assets, services, or projects. Often described as Islamic bonds, sukuk differ from conventional bonds in that they must be backed by real economic activity or assets rather than representing a simple debt obligation with interest payments, which are prohibited under Islamic law.
Structure
Sukuk are structured through various mechanisms to achieve Sharia compliance. Common structures include ijara sukuk (based on lease arrangements), murabaha sukuk (based on cost-plus sale agreements), wakala sukuk (based on investment agency arrangements), and musharaka sukuk (based on partnership arrangements). Each structure involves the creation of a special purpose vehicle that holds the underlying assets and issues the certificates to investors.
The returns to sukuk holders are derived from the performance of the underlying assets rather than from interest payments. In practice, the economic outcomes for investors are often similar to conventional bonds, but the legal structure and asset backing differ materially.
Global Market
The global sukuk market has grown substantially, with total outstanding sukuk exceeding $800 billion. Malaysia and the Gulf states are the largest markets. Sovereign issuers include the governments of Saudi Arabia, the UAE (including Abu Dhabi), Bahrain, Malaysia, Indonesia, and Turkey, among others. Corporate and financial institution sukuk issuance has also expanded significantly.
Bahrain’s Role
Bahrain was among the earliest sovereign sukuk issuers and has been a pioneer in developing the Islamic capital markets. The Bahrain government regularly issues sukuk to finance fiscal deficits, and the Central Bank of Bahrain’s regulatory framework provides a comprehensive legal and supervisory infrastructure for sukuk issuance and trading. AAOIFI, headquartered in Bahrain, sets the standards for sukuk structuring and compliance.
Abu Dhabi Issuance
Abu Dhabi-based entities, including the government and government-related companies, have issued sukuk to diversify their funding sources and deepen the emirate’s capital markets. The Abu Dhabi Securities Exchange lists sukuk for secondary market trading.
Role in Vision 2030
Sukuk are relevant to both Vision 2030 programmes as instruments for financing economic development and deepening capital markets. For Bahrain, the sukuk market reinforces the kingdom’s position as an Islamic finance hub. For Abu Dhabi, sukuk issuance supports capital market development and provides Sharia-compliant financing options for the diversification agenda.