Industry figures say the market for Shariah-compliant products needs harmonised rules between jurisdictions to foster growth.

Malaysia retains its top spot as the jurisdiction in which Shariah-compliant Sukuk financial structures are issued, far ahead of its Asian neighbour Indonesia, and industry figures warned that figures in some financial centres are disappointing.

The country’s combined domestic and domestic issuances of Sukuk stood at $612 billion, according to the International Islamic Financial Market Sukuk Report 2018. By comparison, Indonesia’s figure is $63 billion; Saudi Arabia is at $95 billion and the UAE figure is $68 billion. 

The report was launched at an event organised by IIFM and hosted by Labuan IBFC.

“Barring Malaysia, the corporate Sukuk issuances in most of the established jurisdictions is below expectation and challenges including legal and policy issues must be resolved to encourage more Sukuk issuances by corporate entities,” Ijlal Ahmed Alvi, chief executive of IIFM, said. 

In recent years industry figures have warned the sector lacks sufficiently standardised rules over how Sukuk instruments - a Shariah equivalent of a bond - should be structured so as to comply with Islamic law while remaining attractive to Muslim and non-Muslim investors. 

Investments complying with Islamic law are banned from earning interest on loans, avoid speculative instruments and portfolios must avoid holding assets linked to areas such as alcohol and gambling. In general terms, Shariah finance is akin to equity rather than debt. 

The rise in oil wealth in parts of the Muslim world, coupled with the rise of an affluent middle class in certain countries with large Muslim populations, has encouraged predictions that Shariah finance and investment will grow rapidly. Different rules have arguably hobbled growth. Typically, the law is more conservatively applied in jurisdictions such as Saudi Arabia than in Malaysia, for example.

“Standardisation is a must for creating a transparent and robust industry and I expect the leadership of Islamic banks as well as the regulators to encourage the use of IIFM standards in their jurisdictions which will further enhance efficiency, reduce costs, promote best market practice and serve in the unification and harmonisation of the industry,” chairman of IIFM, Khalid Hamad, said.