The emergence of sukuks — so-called Islamic bonds — was arguably the most significant development in Sharia-compliant capital markets of the last 20 years.
However, only 4,650 deals have taken place since 2005 and issuance has declined from a peak in 2012, according to S&P Global Ratings. That is despite a large pool of investors that can only invest in Sharia-complaint assets, according to S&P. Sharia law prohibits levying interest on debt, making traditional capital market deals out of bounds for these investors.
What might spur the market would be standardization of deals that currently vary widely across countries and issuers, S&P's director of Islamic finance said on Thursday. This variation is in part due to Islamic scholars' conflicting interpretations of Sharia law and how it applies to debt financing, differing laws between issuing countries and variance in the structuring and underlying assets of deals.