Sukuk Market at a Crossroads: StanChart Stresses Quest for Balance

Looking back on over 20 years of Sukuk development, Hilal emphasised the importance of balancing enhanced compliance with Islamic Law and with practical market realities. «There are very legitimate expectations from Sharia scholars that we must respect,» Hilal said, «but we also need to consider investor requirements and issuer challenges.» Ownership Comes with Responsibilities A key discussion point, Hilal explained, is the issue of title transfer in Sukuk structures—a complex topic where the United Arab Emirates (UAE) has taken a leading role. The UAE Central Bank and the Higher Sharia Authority are actively engaging with the industry and participating in the Sukuk Working Committee alongside the HSA Secretariat to address these issues ahead of finalising the IOP standards. Title transfer refers to the actual legal transfer of ownership (title) of the underlying asset from the Sukuk issuer to the Sukuk investors. In Islamic finance, Sukuk must represent ownership in tangible capital assets or projects, not merely debt obligations like conventional bonds. Ideally, investors should hold a share in the asset value—such as real estate or precious metals—that generates the returns. Seeking Compromises The Financial Times reported earlier this May that the global Sukuk market—valued at around $1 trillion and a vital funding source for governments and companies in the Middle East, Asia, and beyond—is at a crossroads following proposed changes by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). The new Shariah Standard 62 aims to make Sukuk more clearly compliant with Islamic law by requiring full legal ownership transfer of tangible assets to investors. This contrasts with the widespread current practice of «asset-based» Sukuk, where investors hold economic rights to assets without formal title transfer. At ADFW, Hilal confirmed that the IOP has currently paused the standard-setting process to consider industry feedback and find a balanced approach. «It’s about finding the right middle ground that allows us to enhance the Sharia quality of Sukuk while meeting the needs of issuers and complying with legal and regulatory requirements,» he said. Hilal considers this balance crucial for scaling the Sukuk market to the next trillion-dollar milestone. The industry expects the Shariah Standard to come into effect in 2026 or later. Positive Outlook Around «Faith and Finance» Despite the ongoing Sukuk debate, British lender Standard Chartered forecasts a strong future for Islamic finance, with global Sharia-compliant assets and investments expected to reach $7.5 trillion by 2028—driven by corporate demand, product innovation, and market expansion. Standard Chartered anticipates that the Islamic finance sector will grow by 36% between 2024 and 2028, with Sharia-compliant global wealth surpassing $5.5 trillion by the end of 2024. Growth is supported by increasing integration of Sharia-compliant financing tools like Sukuk into corporate strategic funding models. The bank identifies China, the Middle East, and Africa as high-potential markets, with rising bilateral trade across the GCC, Southeast Asia, South Asia, and Africa providing fertile ground for expansion.