The global Islamic sukuk market has undergone a fundamental transformation over the past decade, evolving from a niche financing instrument serving a limited investor base into a mainstream global asset class attracting the attention of the world’s largest investment funds, central banks, and international financial institutions. According to the latest data from the Refinitiv Islamic Finance Index, global sukuk issuance has surpassed $200 billion annually, reflecting growing confidence in these Sharia-compliant financial instruments. This growth is no longer confined to traditional Islamic markets but extends to issuers from Europe, Asia, and Africa — a clear signal that Islamic finance has secured a permanent place in the global financial architecture.

Sovereign Sukuk: The Backbone of Government Financing in Emerging Markets

Sovereign sukuk represent the backbone of the global sukuk market, as governments turn to these instruments to finance infrastructure projects and economic development. Saudi Arabia stands out as one of the largest sovereign issuers globally, having issued billions of dollars in sukuk to support the Riyadh Financial Hub and fund the ambitious Vision 2030 projects. Reports from S&P Global indicate that Saudi sovereign sukuk carry high credit ratings that make them among the most attractive instruments for international investors.

In the United Arab Emirates, the sukuk market is experiencing remarkable growth supported by an advanced regulatory environment and sophisticated financial infrastructure. Nasdaq Dubai has cemented the emirate’s position as a leading global hub for sukuk listing, hosting sukuk listings exceeding $100 billion in value, making it one of the world’s largest sukuk listing platforms. The stability of Gulf currencies pegged to the US dollar further enhances the attractiveness of these issuances for foreign investors.

In Southeast Asia, Malaysia retains its position as the world’s largest sukuk market by domestic issuance, while Indonesia has emerged as a major sovereign issuer with regular offerings in international markets. The Indonesian government has successfully diversified its investor base through multi-currency sukuk issuances targeting different markets.

“Sovereign sukuk have become an indispensable tool in public debt management strategies — not only in Muslim-majority countries but also in nations such as the United Kingdom, Hong Kong, and South Africa, which have issued successful sovereign sukuk.” — Moody’s Islamic Finance Report

Sukuk Structures: From Ijara to Wakala and Beyond

The sukuk market is characterized by a diversity of financing structures that cater to the varying needs of issuers and investors, all governed by standards set by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), which serves as the primary Sharia and accounting authority for the industry. The most prominent structures in use include:

1. Ijara Sukuk: Among the most widely used structures, based on ownership of real assets that are leased back to the issuer in exchange for regular rental payments constituting the return for investors. These sukuk are distinguished by their direct link to tangible assets, providing an additional layer of security.
2. Murabaha Sukuk: Based on cost-plus sale contracts where commodities or assets are purchased and resold at a known profit margin. These sukuk are frequently used in short- to medium-term financing.
3. Wakala Sukuk: The issuer appoints an agent to invest funds in a diversified asset portfolio on behalf of sukuk holders, with an expected return specified upfront. This structure has witnessed significant growth in recent years due to its high degree of flexibility.
4. Musharaka and Mudaraba Sukuk: Based on the principle of profit-and-loss sharing, used to finance large-scale projects requiring genuine partnership between the issuer and investors.
5. Hybrid Sukuk: Combining more than one structure in a single issuance to achieve maximum flexibility and financing efficiency.

The International Islamic Financial Market (IIFM) works to standardize documentation and standards relating to these structures, facilitating cross-border trading and enhancing liquidity in secondary markets.

Green Sukuk and Sustainability Sukuk: Where Islamic Finance Meets ESG

The convergence of Islamic finance and Environmental, Social, and Governance (ESG) criteria represents one of the most significant developments in the global sukuk market. The core principles of Islamic finance — the prohibition of riba (interest), commitment to social responsibility, and avoidance of harmful activities — naturally align with sustainable investment objectives. This convergence has given rise to a new category of financial instruments known as Green Sukuk.

Indonesia issued the world’s first sovereign green sukuk in 2018, followed by several governments and corporations with similar issuances. Data from Reuters indicates that the volume of green sukuk and sustainability sukuk issuances tripled between 2020 and 2025, driven by Gulf governments’ commitments to carbon neutrality targets.

Projects financed through green sukuk include:

• Solar and wind energy plants in Saudi Arabia and the UAE
• Sustainable transportation and smart city projects
• Energy efficiency and water management initiatives
• Sustainable agriculture and food security projects
• Healthcare and educational infrastructure in emerging markets

The World Bank has launched several initiatives to support green sukuk issuances in developing countries, viewing them as an effective tool for achieving the Sustainable Development Goals. Total ESG sukuk issuances reached approximately $30 billion by the end of 2025, with expectations to double this figure by 2028.

Yield Comparisons: Sukuk Versus Conventional Bonds

Yield analysis is one of the most critical factors investors examine when choosing between sukuk and conventional bonds. Historical data shows that investment-grade sukuk offer competitive yields compared to their conventional counterparts, often with lower volatility. According to Bloomberg analysis, the yield spread between sukuk and similarly rated conventional bonds ranges from just 5 to 25 basis points — a gap that is narrowing as the market matures.

The competitiveness of sukuk yields is driven by several factors:

1. High institutional demand: Sovereign wealth funds, Islamic banks, and Sharia-compliant financial institutions actively seek high-quality Sharia-compliant assets.
2. Relative supply scarcity: Despite significant growth, the sukuk market remains considerably smaller than the conventional bond market, creating favorable supply-demand dynamics.
3. Geographic diversification: Exposure to Gulf and Southeast Asian economies provides valuable diversification for global fixed-income portfolios.
4. Credit quality: Many sovereign sukuk issuers benefit from high credit ratings supported by oil reserves or diversified economies.

“Investors no longer view sukuk as an alternative asset class — they have become an integral part of allocation strategies in global fixed-income portfolios.” — S&P Global 2025 Report

Corporate Sukuk: Private Sector Financing Through Sharia-Compliant Instruments

The sukuk market is not limited to government issuances — the corporate sukuk segment is experiencing accelerated growth as an increasing number of private-sector institutions turn to this mode of financing. Major Islamic banks stand out as the most prominent issuers in this segment, issuing sukuk to strengthen their capital base and comply with Basel III capital adequacy requirements.

The most active sectors in corporate sukuk issuance include:

• Banking and finance: Islamic banks issue Additional Tier 1 (AT1) and Tier 2 sukuk to meet regulatory capital requirements.
• Real estate: Property development companies use ijara sukuk to finance major projects in Dubai, Riyadh, and Kuala Lumpur.
• Energy and utilities: Renewable energy and utility companies turn to green sukuk to finance the energy transition.
• Telecommunications and technology: This sector has seen new issuers enter the sukuk market alongside the growth of the digital economy in the region.
• Infrastructure: Roads, ports, and airport projects are financed through long-term sukuk backed by stable cash flows.

Corporate sukuk accounted for approximately 35% of total global issuances in 2025, compared to roughly 20% five years earlier, reflecting the private sector’s growing confidence in these financing instruments and their ability to offer competitive terms.

Secondary Market Liquidity and Trading Challenges

Secondary market liquidity has historically been one of the most significant challenges facing the sukuk market. Unlike the conventional bond market, which benefits from deep and active secondary markets, sukuk investors traditionally favored a “buy-and-hold” strategy, resulting in limited secondary market trading. However, this situation has begun to change significantly.

Key initiatives aimed at enhancing liquidity include:

• Electronic trading platforms: Several regional exchanges have launched specialized platforms for electronic sukuk trading, facilitating pricing and execution.
• Market-making programs: Some governments and issuers have appointed market makers to provide continuous bid-ask prices for their issuances.
• Standardization of issuance sizes: The trend toward larger issuances ($1 billion and above) has notably improved liquidity.
• Dual listings: Many issuers list their sukuk on more than one exchange to broaden the investor base and enhance trading activity.

Data from the IIFM indicates that secondary market trading volumes for sukuk rose by 45% between 2022 and 2025, driven by the entry of new international institutional investors and improvements in trading infrastructure. Nevertheless, a significant gap remains compared to conventional bond markets, representing a promising growth opportunity.

AAOIFI Standards Evolution and the Global Regulatory Framework

The regulatory and Sharia framework constitutes one of the fundamental pillars for the growth and sustainability of the sukuk market. The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) plays a pivotal role in this context by issuing Sharia, accounting, and auditing standards that govern the entire Islamic finance industry.

The most notable recent regulatory developments include:

1. Updated AAOIFI Standard No. 62 on Sukuk: This updated standard represents a qualitative leap in clarifying the requirements for true ownership of underlying assets and transfer mechanisms, enhancing transparency and reducing Sharia non-compliance risks.
2. Sharia governance standards: Several regulatory authorities have imposed stricter standards for the composition, independence, and decision-making processes of Sharia boards.
3. Coordination with Basel standards: Regulators have developed guidelines for the treatment of sukuk under Basel III capital adequacy requirements.
4. Disclosure and transparency standards: Disclosure requirements for sukuk issuances have been strengthened to align with international best practices in debt markets.

Reuters and Bloomberg are developing specialized sukuk indices that facilitate benchmarking and performance tracking, supporting the institutionalization of this market and enhancing its transparency for international investors.

“Harmonizing Sharia and regulatory standards across jurisdictions represents the key to unlocking the full potential of the global sukuk market and transforming it into an asset class fully comparable with conventional bonds.” — Moody’s Islamic Finance

The Future of the Global Sukuk Market: Outlook and Growth Opportunities Through 2030

Reports from major international financial institutions unanimously agree that the global sukuk market stands before an exceptional growth phase in the coming years. S&P Global projections indicate that total annual issuances could reach $300 billion by 2028, driven by several pivotal factors:

• Energy transition in Gulf states: Renewable energy and green hydrogen projects will generate enormous demand for green sukuk to finance these massive initiatives.
• Digitalization of the sukuk market: Blockchain technology and tokenization are expected to revolutionize sukuk issuance and trading, reducing costs while enhancing efficiency and transparency.
• Expanding issuer base: New sovereign issuers from Africa and Central Asia are expected to enter the sukuk market, supported by multilateral development institutions.
• Growth of sukuk ETFs: The launch of specialized sukuk exchange-traded funds will broaden the investor base to include retail investors and smaller institutions.
• ESG integration: The convergence of Islamic finance and sustainable investment will strengthen, attracting a new cohort of impact-focused investors.

Despite these optimistic projections, the market faces challenges that must be addressed to realize its full potential. These include the need for greater harmonization of Sharia standards across different jurisdictions, deepening secondary market liquidity, and developing more complete benchmark yield curves for sovereign sukuk across various currencies.

In conclusion, the global sukuk market is undergoing an irreversible structural transformation from a niche asset class to a foundational pillar of global fixed-income markets. With the convergence of economic growth in Islamic markets, alignment with sustainability standards, and continuous regulatory evolution, sukuk appear poised to play a far greater role in the global financial system over the coming decade.

Disclaimer: This content is provided for informational and educational purposes only and does not constitute financial, investment, or legal advice. Readers are advised to consult a qualified financial advisor before making any investment decisions. The Middle East Insider assumes no responsibility for any losses resulting from the use of information contained in this report.