Sukuk are long-term debt instruments governed by Islamic principles.
According to the Islamic Finance Development Report (IFDR), the global outstanding value of sukuk (unmatured and still circulating in the capital market) reached US$788 billion in 2022, a threefold increase compared to the previous decade.
"The growth of the sukuk market is primarily driven by the ever-increasing financing needs. A broader investor base also recognizes the instrument's appeal, partly due to its scarcity and partly due to its unique composition, encompassing both equity and fixed income," as quoted from the IFDR report.
"Since 2002, sukuk growth has been mainly centered in traditional Islamic finance market countries. However, in the last decade, sukuk issuers from various countries in Europe, Asia, and Sub-Saharan Africa have entered the sukuk market to contribute," it continues.
Despite its continuous growth, the IFDR notes that sukuk issuance remains lower than conventional bonds.
The IFDR also assesses that the sukuk market is more fragmented than the conventional bond market and has lower liquidity in the secondary market due to many investors holding onto their sukuk.
"Many investors hold sukuk until maturity because the instrument is scarce, the interest rate is attractive, and the credit risk is low, especially those issued by governments and multilateral parties," says the IFDR.