Overview

Overview
Sukuk (Islamic bonds) are trust certificates or participation securities that grant investors a share of the asset along with the cash flow and risks that commensurate from such ownership.

Leveraging on various Islamic principles, sukuk can be structured in a number of ways to offer the issuing entity greater financial flexibility and options to meet its funding requirements. Sukuk can be structured based on the principles of:

* Contract of exchange such as bai’ bithaman ajil (BBA), murabahah, istisna’ and ijarah; or
* Contract of participation such as musyarakah and mudharabah.

For more information on sukuk structure in Malaysia, please refer to Common Sukuk Structure.

Globally, the sukuk market has experienced tremendous growth, averaging an annual growth of 40%. Sukuk issued in 2007 amounted to USD82 million.1

Malaysia’s track record in sukuk origination and issuances has been notable for its pioneering efforts since 1990 when the first sukuk in Malaysia was issued. This served as a catalyst for more sukuk issuances, especially in recent years where Malaysia has achieved several industry 'firsts'. As of 2007, the Malaysian sukuk market is the largest sukuk market in world, achieving more than 68.9% or USD62 billion of the global outstanding sukuk.2 In the same year, a Malaysian corporation issued the largest sukuk offering in the world amounting to an equivalent of USD4.7 billion which was twice oversubscribed.

The development of the sukuk market in Malaysia is supported by a comprehensive infrastructure including the reporting, trading and settlement system which has resulted in an active primary sukuk market with an average growth of 22% from 2001-2007.3

Looking at the dynamic development of Malaysia’s sukuk market and infrastructure, it is evident that the country offers one of the most viable options for participation in this fast growing asset class. Coupled with Malaysia’s more than 30 years of experience in Islamic finance and its overall comprehensive domestic sector, Malaysia offers several value propositions for local and foreign sukuk issuers and investors.

1 Source: Islamic Finance Information Service
2 Source: Financial Stability and Payment Systems Report 2007, Bank Negara Malaysia
3 Ibid