Global sukuk dip 3% to US$183b in 2022, reports IIFM

The global sukuk issuance of US$183 billion in 2022, a marginal 3% drop from the year before, saw the prevalence of fixed profit rate sukuk and increasing share of Environmental, Social and Governance (ESG) linked sukuk.

Malaysia continues to maintain its top position in terms of issuances followed by Saudi Arabia, Indonesia, supra-nationals (mainly Islamic Development Bank or IDB), United Arab Emirates (UAE) and Turkiye, according to the latest Sukuk report by the International Islamic Financial Market (IIFM).

Although new jurisdictions continue to enter the market, the report noted that Sukuk issuances still remain fairly concentrated with around 93.6% of the US$794 billion outstanding Sukuk belonging to just a handful of key markets – Malaysia, Indonesia, GCC and Turkiye.

The trend of issuing Sukuk on a fixed profit rate is expected to continue given the fact that the investor base is much more diverse as compared to the early years of Sukuk issuance when the investors were generally financial institutions, said IIFM CEO Ijlal Ahmed Alvi.

“The Sukuk issued on fixed profit rates provide more trading opportunities and is helping the development of the secondary Sukuk market. However, the ongoing increase in the benchmark rates globally is keeping the secondary market activity to relatively low level as compared to previous years’ low benchmark rates environment,” he said in a briefing note on the report.

On developments in the Sukuk market, Ijlal said that ESG linked Sukuk are now regularly issued as a key theme in some Sukuk issuing jurisdictions.

In 2022, the total ESG Sukuk issuances were around US$8.80 billion while as per market estimates the outstanding amount has crossed US$30 billion by mid-2023, according to IIFM data.

In terms of achieving diversification in type of Sukuk issuances, he said it is important that the market participants continue to make efforts in increasing the ‘very small to negligible volume’ of asset backed Sukuk so far issued.

“In order for the asset backed market to get moving it is important to address issues such availability of fully transferable assets, structuring issues and legal challenges especially title transfer requirements and risk management of the underlying asset need to be addressed,” he said.

 IIFM noted another welcome development, particularly from Indonesia, is Sukuk issuances by SME on crowdfunding platforms by various small companies.

“The issuance of Waqf linked Sukuk from Indonesia is also an important step in utilization of proceeds for noble causes,” said Ijlal.

IIFM is a global standard-setting body of the Islamic financial services industry (IFSI) focusing on standardisation of Shariah-compliant financial contracts and product templates. –TMR