“A sukuk is not a bond” it is a certificate representing proportional ownership in an underlying asset, pool of assets, or project, with returns derived from income generated by those assets rather than from interest payments on a debt obligation. The distinction between sukuk and bonds is not merely semantic: it determines which investors can hold the instrument, how it is structured, and what rights holders possess in default.
Executive Summary
The global sukuk market reached approximately $900 billion in outstanding issuance by 2023, with Saudi Arabia ($49 billion in new issuance in 2023) and Malaysia (38% of global outstanding) as the dominant markets. Sukuk have expanded from a GCC and Southeast Asian instrument into a genuinely global asset class, with issuers including the UK, Luxembourg, South Africa, Indonesia, and most recently Egypt and Nigeria.
The green sukuk market has emerged as a particularly dynamic sub-sector: Malaysia’s Khazanah Nasional issued the world’s first green sukuk in 2017 (RM2.5 billion), and the Islamic Development Bank has committed to $5 billion in green sukuk issuance through 2025, positioning Islamic capital markets as a complement to conventional sustainable finance.
The Strategic Mechanism
Sukuk structures vary by the underlying contract type, creating distinct risk and return profiles:
- Ijara Sukuk: The most commonly used structure; investors own a share of a physical asset (property, infrastructure) leased to the issuer, receiving rental income as returns. The UK sovereign sukuk use this structure with HM Treasury properties as underlying assets.
- Musharaka/Mudaraba Sukuk: Investors hold equity-like participation in a project or business, receiving profit distributions. Used for project finance where asset ownership transfer is complex.
- Wakala Sukuk: An agency structure where the issuer acts as agent investing sukuk proceeds in a portfolio of Sharia-compliant assets on behalf of investors. Increasingly common for corporate and financial institution issuers.
- Hybrid Sukuk: Combinations of the above structures, designed to meet specific investor or regulatory requirements while maintaining Sharia compliance across the full maturity of the instrument.
Market & Policy Impact
- Global sukuk outstanding reached approximately $900 billion by 2023, with Saudi Arabia, Malaysia, the UAE, and Indonesia as the four largest markets by issuance volume.
- Saudi Arabia issued $49 billion in sukuk in 2023, including a $5 billion international sukuk oversubscribed 6.6x, as Vision 2030 infrastructure finance drove record capital market activity.
- Malaysia’s Bursa Malaysia lists over 700 sukuk series, making it the world’s most liquid sukuk exchange with 38% of global outstanding instruments.
- Malaysia’s Khazanah Nasional issued the world’s first green sukuk in 2017 (RM2.5 billion, approximately $600 million), creating the ESG sukuk market segment that has grown to over $20 billion in outstanding issuance.
- Indonesia’s retail sukuk programme distributed through mobile banking apps raised IDR 95 trillion from over 800,000 retail investors by 2024, demonstrating sukuk democratization through digital distribution.
Modern Case Study: Indonesia Retail Sukuk Digital Distribution, 2019-2024
Indonesia’s government sukuk programme stands out globally as the most successful democratization of sovereign bond investment through digital channels. Beginning in 2019, the Indonesian government began distributing retail sukuk (SR-series) and savings sukuk (ST-series) through mobile banking apps, investment platforms, and e-commerce marketplaces including GoPay and OVO, alongside traditional bank channels.
By 2024, cumulative retail sukuk sales had reached IDR 95 trillion ($6.2 billion) from over 800,000 individual investors, with minimum investment amounts as low as IDR 1 million ($65) accessibility levels impossible through traditional securities distribution. The 2024 ST-series offering was fully subscribed in 10 days through 36 distribution partners. The programme simultaneously achieved three policy goals: broadening domestic investor base for government debt, promoting Islamic finance adoption, and driving financial inclusion through capital market participation. Indonesia’s model has been studied by Malaysia, Egypt, and Saudi Arabia as a template for domestic sukuk market deepening.