Sukuk (; plural of ) is the Arabic name for financial certificates, also commonly referred to as "sharia compliant" bonds. Sukuk are defined by the AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions) as "securities of equal denomination representing individual ownership interests in a portfolio of eligible existing or future assets." The Fiqh academy of the OIC legitimized the use of sukuk in February 1988.Visser, Hans. 2009. Islamic finance: Principles and practice. Cheltenham, UK and Northampton MA, Edward Elgar. p.63Khan, What Is Wrong with Islamic Economics?, 2013: p.251
Sukuk were developed as an alternative to conventional bonds, which are not permissible in Islam as they pay interest (prohibited or discouraged as Riba, or usury), and also may finance businesses involved in activities not permitted under sharia (gambling, alcohol, pork, etc.). Sukuk securities are structured to comply with sharia by paying profit, not interest—generally by involving a tangible asset in the investment. For example, sukuk securities may have partial ownership of a property built by the investment company (and held in a Special Purpose Vehicle), so that sukuk holders can collect the property's profit as rent (which is allowed under Islamic law). Because they represent ownership of real assets and (at least in theory) do not guarantee repayment of initial investment, sukuk resemble equity instruments, but like a bond (and unlike equity) regular payments cease upon their expiration. However, most sukuk are "asset-based" rather than "asset-backed"—their assets are not truly owned by their Special Purpose Vehicle, and their holders have recourse to the originator if there is a shortfall in payments.
Different types of sukuk are based on different types of Islamic contract (murabaha, ijarah, istisna, musharaka, istithmar, etc.) depending on the project the sukuk is financing.Jamaldeen, Islamic Finance For Dummies, 2012:214
According to the State of the Global Islamic Economy Report 2016/17, of the $2.004 trillion of assets being managed in a sharia compliant manner in 2014, $342 billion were sukuk, being made up of 2,354 sukuk issues.
Etymology The Arabic term ṣakk was borrowed from Classical Persian چک (čak, “legal document, document, contract, deed of sale, bill”).
History In the classical period of Islam, sakk (sukuk) meant any document representing a contract or conveyance of rights, obligations or monies done in conformity with Shariah. The term was used to refer to financial obligations originating from trade and other commercial activities in the Islamic pre-modern period.N. J. Adam and A. Thomas, "Islamic fixed-income securities: sukuk" in S. Jaffar (ed), Islamic Asset Management: Forming the Future for Shari’a-Compliant Investment Strategies (London: Euromoney Books, 2004), p. 73, cited in A. Thomas, "What are Sukuk?" AJIF.org LLC, cited in M. A. Khan, Islamic Economics and Finance: A Glossary (Routledge: London, 2003), p. 163, cited in
According to Camille Paldi, the first sukuk transaction took place in Damascus in its Great Mosque in the 7th century AD. Muslim traders are known to have used the cheque or ṣakk system since the time of Harun al-Rashid (9th century) of the Abbasid Caliphate.Subhi Y. Labib (1969), "Capitalism in Medieval Islam", The Journal of Economic History 29 (1), pp. 79–96 [92–3].
The modern Western word "cheque" appears to have been derived from "sakk" (singular of sukuk),G. W. Heck, Charlemagne, Muhammad, and the Arab roots of capitalism (Berlin: Walter de Gruyter, 2006), p. 217–218A. L. Udovitch, "Bankers without Banks: Commerce, Banking, and Society in the Islamic World of the Middle Ages" in Centre for Medieval and Renaissance Studies, UCLA (ed), The Dawn of Modern Banking (New Haven & London: Yale University Press, 1979), p. 268–274A. L. Udovitch, "Trade" in J. R. Strayer (ed), The Dictionary of the Middle Ages, Volume 12 (New York: Charles Scribner's Sons, 1989), p. 105–108. which during the Middle Ages referred to a written agreement "to pay for goods when they were delivered" and was used to "avoid money having to be transported across dangerous terrain".P. Vallely, "How Islamic inventors changed the world" The Independent, 11 March 2006 at https://www.independent.co.uk/news/science/how-islamic-inventors-changed-the-world-469452.html [Accessed 27 October 2013], cited in
Modern Answering a need to provide short and medium term instruments so that balance sheets of Islamic financial institutions could be more liquid, the Fiqh academy of the OIC (Organization of Islamic Countries) legitimized the use of sukuk in February 1988.
In 1990 one of the first contemporary sukuk—worth RM125 million—was issued by Malaysia Shell MDS Sdn Bhd, on the basis of bai' bithaman ajil.International Islamic Financial Market, 2012. Sukuk report: A comprehensive study of the global sukuk market, http://iifm.net/media/pdf/iifm_suku_report_2.pdf The next major sukuk issuances were by Kuala Lumpur International Airport for RM2.2 billion each in 1996 and 1997.Securities Commission of Malaysia In 2000, the government of Sudan issued domestic sovereign short-term sukuk worth 77 million Sudanese pounds on the basis of musharaka. In 2001, the sukuk market went international with the issuance of the first US-dollar-denominated ijara sukuk, worth $100 million, by the Central Bank of Bahrain. Since then many sovereign and corporate sukuk issues have been offered in various jurisdictions.Khan, What Is Wrong with Islamic Economics?, 2013: p.306-7
To standardize the growing market, the AAOIF issued "Shari’ah Standard No.17" on "Investment Sukuk" in May 2003. It became effective starting 1 January 2004.
In 2025, the AAOIF proposed changes to its Shariah Standard 62 that could significantly reshape the global sukuk market, which has grown to over $1 trillion. The new framework advocates a shift from commonly used "asset-based" sukuk structures, where investors have beneficial interests but not legal ownership, to "asset-backed" models requiring full legal transfer of underlying assets. While intended to enhance Shariah compliance by distancing sukuk from conventional debt instruments, the proposed changes raise concerns about legal feasibility, investor appetite, and market fragmentation. Critics warn that inconsistent implementation across jurisdictions could introduce legal uncertainty, reduce liquidity, and deter institutional investors reliant on credit ratings. AAOIFI is expected to finalize the standard in 2025 after reviewing industry feedback.
Industry International Sukuk Issuance2007$13.8 billion2008 $2.14 billion2009$7.47 billion2010 $5.35 billion2011 ~$80 billion2012 <$150 billion2013 >$120 billion2014 ~$130 billion"Islamic Finance: Opportunities, Challenges, and Policy Options", IMF, April 2015, p. 142015 >$100 billion2016 $72.9 billionGlobal sukuk issuance expected to be lower this year, Ganeshwaran Kana Jakarta Post, 7 March 2017SOURCES: 2012 International Islamic Financial Market report p. 12,Khan, What Is Wrong with Islamic Economics?, 2013: p.307 Forbes,Sukuk Market Struggles To Find Sources Of Growth| Forbes| 21 September 2016 As of early 2017, there were US$328 billion worth of sukuk outstanding worldwide. As of the end of 2016, there were about 146 US dollar-denominated, Islamic fixed income securities issued in the global markets, that were investment-grade, and had a duration of at least one year. These securities—which make up the Citi Sukuk Index—had an average maturity of 4.54 years, and most were issued by governments. The top four issuers by market weight—making up over 40% of the market—were: ISLAMIC DEVELOPMENT BANK, PERUSAHAAN PENERBIT SBSN INDOIII, SAUDI ELECTRICITY CO, and SOQ SUKUK A QSC. About 3/4 of the sukuk market is domestic, not international. Most sukuk are not investment grade however,Khan, Islamic Banking in Pakistan, 2015: p. 108 and as of 2015, there were 2,354 sukuk issues in total, including local currency denominated, non-global market sukuk, according to Thomson Reuters & Dinar Standard. According to the Malaysian International Islamic Financial Centre, as of 2013 the biggest issuers of sukuk were governments (65.6%), and the second largest were power and utility companies (13.6%).
Secondary market Sukuk securities tend to be bought and held. As a result, few securities enter the secondary market to be traded. Furthermore, only public sukuk are able to enter this market, as they are listed on stock exchanges.
The secondary market, though still developing, remains a niche segment with virtually all of the trading done at the institutional level. The size of the secondary market remains unknown, though LMC Bahrain states they traded $55.5 million of sukuk in 2007.Trades executed in the secondary market, Liquidity Management Centre As of July 2014 sukuk.com listed fifteen sukuk on the secondary market for Gulf sukuk.
Principles Ali Arsalan Tariq states that Islamic finance—including sukuk—is based on a set of several prohibitions: Transactions in unethical goods and services; Earning returns from a loan contract (riba/interest); Compensation-based restructuring of debts; Excessive uncertainty in contracts (gharar); Gambling and chance-based games (qimar); Trading in debt contracts at discount, and; Forward foreign exchange transactions. As Shari’ah considers money to be a measuring tool for value and not an asset in itself, it requires that one should not receive income from money (or anything that has the genus of money) alone, as this (simplistically, interest) is "riba", and forbidden. From a Sharia perspective, certificates of debt are not tradable except at their par value (although a different view is held by many in Malaysia).
While a bond is a contractual debt obligation of the issuer to pay to bondholders, on certain specified dates, interest and principal, a sukuk is a certificate giving its holders an undivided beneficial ownership in the underlying assets. Consequently, sukuk holders are entitled to share in the revenues generated by the sukuk assets as well as being entitled to share in the proceeds of the realization of the sukuk assets.
Similarities with bonds Sukuk and bonds are sold to investors who receive a stream of payments until the date of the maturity of the sukuk or bond, at which time they get their original investment (in the case of sukuk a full payment is not guaranteed) back.Jamaldeen, Islamic Finance For Dummies, 2012:207-13 Sukuk and bonds are intended to provide investment with less risk than equities (such as shares of stock) and so are often used to "balance a portfolio" of investment instruments.Jamaldeen, Islamic Finance For Dummies, 2012:208 Both sukuk and bond issuers must issue a disclosure document known as a prospectus to describe the security they are selling. To give investors an idea of how much risk is involved in particular sukuk/bonds, rating agencies rate the credit worthiness of the issuers of the sukuk/bond.Jamaldeen, Islamic Finance For Dummies, 2012:212-3 Both sukuk and bonds are initially sold by their original issuers. After that they (or some sukuk and bonds) may be bought and sold by brokers and agents, mostly on the over-the-counter (OTC) market, but are also available on some stock exchanges around the world.Jamaldeen, Islamic Finance For Dummies, 2012:211-2
Differences from bonds Ownership: Sukuk should indicate partial ownership of an asset. Bonds indicate a debt obligation.Jamaldeen, Islamic Finance For Dummies, 2012:211 Compliance: The assets that back sukuk should be compliant with Shariah. Bonds need only comply with the laws of country/locality they are issued in. Pricing: The face value of a sukuk is priced according to the value of the assets backing them. Bond pricing is based on credit rating, i.e. the issuer's credit worthiness.