this decade, greater focus was particularly given to the institutional
arrangements to develop the sukuk market. The sukuk market now accounts for
more than fifty percent of Malaysia’s bond market. The market has drawn the
participation from a wide range of international corporations and multilateral
agencies in raising funds and investing in the sukuk issuances out of Malaysia.
More recently, there has also been continuous innovation and an increasing
number of issuances in foreign currency. As Malaysia offers international
participation in the Islamic financial system, also offer to be an
international gateway, particularly in strengthening the link between the two
important dynamic growth regions of Asia and the Middle East.
Breakdown of Global
Sukuk Issues by Country for year 2010:
sukuk market started with a simple issue size of RM125 million by Shell MDS
Sdn. Bhd.. in 1990 and is now growing in size and increasingly sophisticated.
This development is evident in the largest sukuk issue recently valued at
RM15.4 billion (USD4.7 billion) by Binariang GSM Sdn. Bhd. Now, the sukuk market
in Malaysia is among the fastest growing in the world, with an average annual
growth of 22% issued for the period 2001-2007. After introducing the first
sovereign global sukuk in the world in 2002, Malaysia has continued it success
by introducing innovative sukuk structures such as convertible musyarakah sukuk
by Khazanah Nasional Berhad, the Malaysian government investment holding company.
This is a historic issue of the first of its kind in the world, which combines
the features of the first full convertibility is usually only used for
conventional equity-linked transactions.
the area of capacity building, Malaysia has also given priority to two areas
which is one is in human capital development and the second, in catalysing
mutual recognition of Shariah interpretations. The International Centre of
Education in Islamic finance (INCEIF) was established in 2006 for advanced
education for practitioners in Islamic finance, and in 2008, the International
Shariah Research Academy (ISRA) was established to conduct applied Shariah
research on the contemporary Islamic finance issues and to provide a platform
for active international engagement among Shariah scholars.
will also continue to collaborate with other regulatory authorities to ensure
financial stability in the Islamic financial system. This will be through
Malaysia’s active involvement in the Islamic Financial Services Board, the
Islamic Financial Stability Forum (IFSF), the initiatives by the Islamic
Development Bank, and finally in the newly formed International Islamic Liquidity
trading in the Malaysian sukuk market has increased the depth and liquidity of
the market with the participation of more companies, including foreign-owned
companies continued use of this market for funding purposes. A large number of
corporate issuance is to finance long-term funding needs. The diversity and
size of the sukuk transaction was the increasing value proposition is attractive
to investors who want to diversify their asset portfolios, thus creating a
vibrant secondary market.
Malaysian sukuk market has also grown to become more innovative and
sophisticated to meet the diverse risk-return profiles and requirements of both
issuers and investors. The proliferation of new types of instruments with
extended maturity profiles have generated a diversified range of players, both
local and foreign to participate in the market. This was facilitated by the
liberalisation of the market in 2005 to allow for issuance of debt securities
by foreign corporations and multilateral agencies in ringgit denominated
papers. In 2007, this was extended to foreign currency denominated issuances.
Indeed, this has attracted many foreign corporations, multinational
corporations and multilateral agencies to raise funds and invest in issuances
and origination out of Malaysia, hence enhancing the Malaysian market, and
strengthening Malaysia’s inter-linkages with other international financial
development of the sukuk market in Malaysia has accompanied the transformation
of the Malaysian economy that has now become more diversified and private
sector driven. The market, initially dominated by the Government debt
securities, now reflects the growing demand for the long term financing
requirements of the private sector. The corporate sector now raises 58% of
their financing requirements through the debt securities and sukuk market
compared to about 33% ten years ago. The presence of a deep and liquid debt securities
and sukuk market thus contributes towards the stability of the financial system.
sukuk industry experienced impressive growth over ten years ago in Malaysia and
is now the focus in the development of Islamic financial system rapidly. Size
of the global sukuk market, including sukuk denominated in local currency, has increased
from USD336 million (RM1.3 billion) in 2000 to an estimated USD82 billion (or
RM281 billion) at the end of 2007, with average annual growth rate of 40%.
However, the total sukuk issuance for 2007 is only worth USD 47billion (or
RM161 billion), an increase of 73% of the total issued in 2006. Although the
performance is not as estimated because of the economic crisis, but the flow of
sukuk issuance seen more positively and surviving. Sukuk also almost unique because
it not only offered to Muslim investors but also to other conventional
to sources IFIS, in 2010 shows that the global sukuk reached US47.77 billion,
an increase of 50% compared with the year 2009, which only reached US31.93
billion in the global market. As expected, Malaysia continued to dominate the
issuance of sukuk in 2010 and became the leading position in the global sukuk
market, with 65% of total outstanding sukuk and 75% of primary issuance of
sukuk as at December 2010.
is the world’s largest sukuk market with a number of Malaysia’s sukuk issues by
68.9%, or USD62 billion (or RM213 billion) of total global outstanding at the
end of 2007. Number of corporate sukuk in Malaysia more than RM30 billion in
2007. Malaysia will not only lead the development of the sukuk market in terms
of total sukuk issuance, even in terms of the introduction of innovative sukuk
structures and competitive to attract more investors.
forward, Malaysia will continue its efforts in strengthening the international
linkages in the global Islamic financial system through collaborative
partnerships and cooperation with the objective of contributing towards greater
international financial and economic integration. No doubt, sukuk (Islamic
bond) proved that it is among the most successful Islamic financial product in
the industry and be one of the fastest-growing sectors in the global financial
Challenges in Sukuk
are various forms of tax to be accounted for. For example, in the ECG sukuk,
which was backed by oil and gas assets in the Gulf of Mexico, the structure
utilised a funding arrangement that was heavily driven by US tax
considerations. Legislation in some jurisdictions requires, in connection with
the conveyance of title in real estate or property transactions (which would be
required in the context of an Ijara wa iktinaa, or sale-leaseback structure),
that the sale contract and the resulting title transfer be recorded in a real
estate register and that a transfer of title fee or tax be paid.
such as lack of uniformity in procedures that had applied the principles of
shariah the lack of professional qualifications (lawyers, scholars and
academics) are experienced in both conventional and Shariah standards and lack
of awareness among employers and apparently the manager of the sukuk is also
difficult to implement. As a proactive measure, ethical standards of inspection
in accordance with shariah should be taken.
for the development of Islamic finance should contain a balanced development of
the shariah and integrated market by the prospect of a unique Islamic finance.
In addition, the products and services must also not limited to Muslim’s market
only. But, also emphasizes acceptance and applications globally. The creation
of many innovations and initiatives have also contributed to the advancement of
Islamic financial system. However, the challenges can be overcome by increased
effort in every cooperation, increase understanding of the shariah concern,
mutual respect and collaboration practices.