Sukuk Issuance Will Continue To Fall in 2017

According to the latest Standard & Poor’s report, the global issuance of sukuk is on a continuous decrease since 2015. Furthermore, the report states that this moderation is expected to continue in 2017 as well. In 2015 the sukuk market was nearly halved, as compared to 2014, due to a decision taken by the Bank Negara Malaysia to stop the issuance of short-term sukuk. Furthermore, in 2016, the volume of issued sukuk continued to decrease.

Several reasons mark the downfall of sukuk issuance. One of the most evident is that the process of issuing sukuk is lengthy and isn’t attractive to companies anymore. According to Mohammad Damak, the Global Head of Islamic Finance since 2014, governments are directing their attention towards traditional bonds due to the ease of use and virtually inexistent issuance waiting times. Another important reason for the downfall of sukuk issuance is the contraction in local and global liquidity. In the case of the majority of Islamic markets, the local liquidity is dependant on the oil sector.

According to the report issued by Standard & Poor, the year-to-date sukuk issuance of 2016 is valued at $39.5 billion. The report for year 2015 showed the value at $47.3 billion, meaning a 16.5% decrease for the current year. Moreover, the same report shows that the expected issuance for 2016 is evaluated at approximately $55 billion. The sukuk issuance for 2015 was valued at $62 billion.

The associate director of S&P’s Infrastructure Finance department, Karim Nassif, reported that in addition to the decrease of sukuk issuance made by the governments, there’s also an additional decrease related to corporate bodies. The drop in oil prices is leading to a decrease in demand for sukuk. Moreover, the competitiveness of other banks and bonds are also hindering the sukuk issuance.