Sukuk

Sukuk are Islamic financial certificates, similar to bonds in Western finance, but structured to comply with Sharia law which prohibits interest (riba) and requires asset backing. Instead of interest payments, sukuk investors receive profit shares from underlying assets or business ventures. Common structures include Ijara (lease-based), Mudaraba (profit-sharing), and Wakala (agency). For example, a $1 billion Ijara sukuk might involve investors purchasing an asset (like an airport), leasing it to the government, receiving rental payments, then selling it back at maturity. The $700 billion sukuk market serves Muslim-majority countries and Islamic finance institutions globally. Major issuers include Saudi Arabia, Malaysia, UAE, and Indonesia. International institutions like the World Bank issue sukuk to access Islamic liquidity. Sukuk must be approved by Sharia boards ensuring compliance. Returns typically track conventional bonds of similar credit quality. Challenges include standardization across jurisdictions, secondary market liquidity, and legal uncertainty in non-Muslim countries. The London Stock Exchange lists numerous sukuk, making London a hub for Islamic finance alongside Dubai and Kuala Lumpur.