Current Issues of the Sukuk Market and Using Sukuk for the Global Infrastructure Projects

The sukuk market has proven its usefulness as a significant source of capital for the public and private sector entities. As a result, the sukuk market has gained great popularity both in the Islamic and the non-Islamic countries. The sukuk market has a flexible nature in product structuring and poised to grow even further. On the other hand, the public financing of infrastructure is a worldwide problem in today’s world. World Economic Forum reports an annual infrastructure financing gap of $1 trillion. As a fast growing segment of the Islamic finance, the sukuk market has significant potential to bridge that gap. However, only a small part of the great potential of sukuk has been released until now. Although huge as it is today, the sukuk market still suffers from the illiquidity of the secondary market for sukuk instruments. The yield curve for sukuk products is still incomplete and regular sovereign issuances is most needed as part of governments’ debt financing programs. That could serve as a benchmark for pricing so corporate sukuk market could develop further. However, there are a myriad questions to answer regarding the public financial management issues before making sukuk issuances an integral part of sovereign debt management policies. Safety nets, resolution frameworks are missing in many jurisdictions. Investors are facing many more risks beyond the conventional fixed-income instruments but they are not adequately protected. There are many complex sukuk structures but there is not sufficient harmonization of shari’ah ruling or legal treatment regarding those products at the international level. Once these problems were resolved, the sukuk market in theory could be much more useful in providing funds to infrastructure projects all around the world. This paper documents the contemporary issues that need to be addressed in the sukuk market and discusses whether the sukuk market could be used to channelize the needed funds for the infrastructural projects.