What is Sukuk?

Sukuk are notes that are structured to comply with Shari'ah principles. In this manner Sukuk are prohibited in charging interest.

Sukuk, as an investment vehicle, appeal to investors whom base their investment philosophy on religious beliefs as well as those who are seeking liquid, diversified and attractively priced instruments.

In some of the popular Sukuk jurisdictions, the appetite for Shari'ah compliant instruments has grown exponentially. In Malaysia for example, Sukuk issuance has grown at a rate of 21% between 2001 and 2008. Currently, just over 55% of outstanding corporate debt securities in Malaysia are Sukuk issuances. This provides a vast pool of liquidity for such instruments and the appetite is expected to grow.

The issuance of Sukuk is not limited to local participants alone. In fact some of the largest issuances have been by foreign corporates, such as Toyota (Japan), AEON Credit Services (Japan) and Shell MDS.

The issuances have varied from USD10m to one of the largest being around USD9.8b. In a tightening market with conventional funding becoming harder to access the attractiveness and liquidity of the Sukuk offering is starting to gather momentum. 

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