Conventional bonds, which pay interest on a loan, are prohibited under the rulings of the International Islamic Fiqh Academy and the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), the two main standard setters for Islamic finance. Both name sukuk, certificates of ownership in assets or projects, as the alternative. A minority view, notably from Egypt’s Dar al-Ifta, is more permissive toward some state investment certificates.
This article was first published in February 2024. It has been updated with the text of the Fiqh Academy and AAOIFI rulings, the original Arabic of the relevant Quran verses and hadith with full references, 2025 sukuk market data from IIFM, S&P Global Ratings and Fitch Ratings, and the status of AAOIFI’s draft Shariah Standard 62. A hadith attributed to Musnad Ahmad has been removed because its grading could not be confirmed, and unsourced market projections have been removed.
Reviewed by Hafiz Maqsood Ahmed.
The question matters to millions of savers and to a fast-growing market. Global sukuk issuance reached $262.9 billion in 2025, up 28.2 percent, and sukuk outstanding passed $1 trillion for the first time, according to the International Islamic Financial Market’s 15th Sukuk Report, as reported by Zawya. Interest-bearing bonds, meanwhile, make up much of the world’s fixed-income market and of many retirement portfolios.
Why most scholars prohibit conventional bonds
A conventional bond is a loan: the investor lends money to a government or company and receives a fixed or floating interest payment plus the principal at maturity. Islamic law prohibits riba, usually translated as interest or usury, and mainstream scholarly bodies treat a guaranteed increase on a loan as riba.
The International Islamic Fiqh Academy of the Organization of Islamic Cooperation (OIC) ruled at its sixth session, in Jeddah in March 1990, that bonds that pay interest tied to their face value are prohibited to issue, buy or trade, and that calling the interest “profit” or a “fee” does not change the ruling, according to Resolution No. 60 (11/6). The same resolution prohibits zero-coupon bonds, which it describes as loans sold below face value, and prize bonds, and it names profit-sharing certificates as the permissible alternative.
AAOIFI reached the same conclusion. Its Shariah Standard No. 21 on financial papers states that issuing bonds that require repayment of the loan plus an increase is prohibited, whether the issuer is a company or a government, and it bans trading in such bonds. The standard names investment sukuk as the substitute.
What the Quran and hadith say about riba
Scholars base the prohibition on verses of the Quran and on hadith, the recorded sayings of the Prophet Muhammad (peace be upon him). Quran translations are Saheeh International, via Quran.com.
ٱلَّذِينَ يَأْكُلُونَ ٱلرِّبَوٰا۟ لَا يَقُومُونَ إِلَّا كَمَا يَقُومُ ٱلَّذِى يَتَخَبَّطُهُ ٱلشَّيْطَـٰنُ مِنَ ٱلْمَسِّ ۚ ذَٰلِكَ بِأَنَّهُمْ قَالُوٓا۟ إِنَّمَا ٱلْبَيْعُ مِثْلُ ٱلرِّبَوٰا۟ ۗ وَأَحَلَّ ٱللَّهُ ٱلْبَيْعَ وَحَرَّمَ ٱلرِّبَوٰا۟ ۚ فَمَن جَآءَهُۥ مَوْعِظَةٌ مِّن رَّبِّهِۦ فَٱنتَهَىٰ فَلَهُۥ مَا سَلَفَ وَأَمْرُهُۥٓ إِلَى ٱللَّهِ ۖ وَمَنْ عَادَ فَأُو۟لَـٰٓئِكَ أَصْحَـٰبُ ٱلنَّارِ ۖ هُمْ فِيهَا خَـٰلِدُونَ
“Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, “Trade is [just] like interest.” But Allāh has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allāh. But whoever returns [to dealing in interest or usury] – those are the companions of the Fire; they will abide eternally therein.”
Surah Al-Baqarah (2), Verse 275
يَـٰٓأَيُّهَا ٱلَّذِينَ ءَامَنُوا۟ ٱتَّقُوا۟ ٱللَّهَ وَذَرُوا۟ مَا بَقِىَ مِنَ ٱلرِّبَوٰٓا۟ إِن كُنتُم مُّؤْمِنِينَ فَإِن لَّمْ تَفْعَلُوا۟ فَأْذَنُوا۟ بِحَرْبٍ مِّنَ ٱللَّهِ وَرَسُولِهِۦ ۖ وَإِن تُبْتُمْ فَلَكُمْ رُءُوسُ أَمْوَٰلِكُمْ لَا تَظْلِمُونَ وَلَا تُظْلَمُونَ
“O you who have believed, fear Allāh and give up what remains [due to you] of interest, if you should be believers. And if you do not, then be informed of a war [against you] from Allāh and His Messenger. But if you repent, you may have your principal – [thus] you do no wrong, nor are you wronged.”
Surah Al-Baqarah (2), Verses 278–279
Hadith numbers follow the Sunnah.com numbering, so anyone can look up each hadith there; printed editions sometimes number them differently. Jabir ibn Abd Allah narrated that the Prophet Muhammad (peace be upon him) cursed everyone involved in a riba transaction:
لَعَنَ رَسُولُ اللَّهِ صلى الله عليه وسلم آكِلَ الرِّبَا وَمُوكِلَهُ وَكَاتِبَهُ وَشَاهِدَيْهِ وَقَالَ هُمْ سَوَاءٌ .
“Jabir said that Allah’s Messenger (ﷺ) cursed the accepter of interest and its payer, and one who records it, and the two witnesses, and he said: They are all equal.”
Reference: Sahih Muslim, The Book of Musaqah (Kitab al-Musaqah), Hadith 1598 (in-book reference: Book 22, Hadith 132).
The dissenting view
Not every recognized authority treats every interest-bearing instrument the same way. In a fatwa dated May 10, 2006, Egypt’s Dar al-Ifta, then led by Grand Mufti Ali Gomaa, said that dealing in bank investment certificates is “not blameworthy,” reasoning that scholars disagree about how to classify modern banking and that a person may follow those who permit it, while riba itself remains forbidden by consensus, according to the Dar al-Ifta’s English fatwa archive. That position is a minority one among international standard setters, whose rulings above govern Islamic banks and Shariah-compliant funds. The Halal Times reports these positions and does not issue rulings.
Sukuk: how they differ from bonds
AAOIFI’s Shariah Standard No. 17 defines investment sukuk as “certificates of equal value representing undivided shares in ownership of tangible assets, usufructs and services or (in the ownership of) the assets of particular projects or special investment activity,” as quoted in an academic study in the European Journal of Islamic Finance. The return comes from those assets, such as rent, rather than from interest on a loan. Our explainer on how sukuk work without interest covers the mechanics in more depth.
| Conventional bond | Sukuk | |
|---|---|---|
| What the investor holds | A claim on a loan | A share in assets, a project or a business activity |
| Source of return | Interest | Rent, profit share or sale profit from the assets |
| Trading | Freely traded at market prices | Tradable if backed mainly by real assets; debt-based sukuk generally only at face value |
| Shariah review | None | Approved by a Shariah board |
Common sukuk structures include:
- Ijara: holders own a leased asset and receive the rent.
- Murabaha: proceeds buy goods that are resold on deferred, cost-plus terms.
- Mudaraba: investors provide capital that the issuer manages, sharing profit at an agreed ratio.
- Musharaka: a partnership in which profit is shared as agreed and losses by capital contribution.
- Wakala: an agent invests the proceeds in a pool of assets for a fee.
Ijara was the most used structure in domestic markets in 2025, according to the IIFM report.
The sukuk market in 2026
Estimates differ because each agency counts the market differently. IIFM put 2025 issuance at $262.9 billion. S&P Global Ratings put it at $264.8 billion, up from $234.9 billion in 2024, and forecast $270 billion to $280 billion for 2026, according to Khaleej Times. Fitch Ratings counted more than $300 billion across all currencies, a record, and said there had been no sukuk defaults in four years, Nukta reported. Issuance reached $129 billion in the first half of 2026, S&P said in July, according to Business Today. Malaysia’s role is covered in our report on Malaysia and global sukuk growth.
Non-Muslim governments use sukuk too. Britain sold a £200 million ijara sukuk in 2014, the Treasury said, and a £500 million sukuk in 2021 that matured on July 22, 2026, according to the British government. Indonesia issued the world’s first sovereign green sukuk, worth $1.25 billion, in 2018, according to the U.N. Development Program.
The criticism: are some sukuk too much like bonds?
The debate over sukuk is not settled. In November 2007, Sheikh Muhammad Taqi Usmani, then chairman of AAOIFI’s Shariah board, said about 85 percent of sukuk were not Shariah-compliant because they were asset-based rather than asset-backed, The Washington Times reported. AAOIFI later required that sukuk represent ownership of real assets.
AAOIFI’s draft Shariah Standard 62, published for comment in November 2023, would require the actual transfer of asset ownership to sukuk holders. In November 2025, AAOIFI Secretary General Omar Mustafa Ansari said the standard had been put on hold for more consultation, Enterprise reported, citing Bloomberg. It remained a draft in mid-2026, according to ACCA’s AB Magazine.
Sukuk also carry credit risk. In 2017, Dana Gas declared its $700 million mudaraba sukuk no longer Shariah-compliant; an English court enforced the company’s purchase undertaking, and a 2018 settlement let holders exit at 90.5 cents on the dollar, according to the law firm Trowers & Hamlins.
Options for Muslim investors
Investors who want fixed-income exposure without interest can buy sukuk directly through brokers in Malaysia and the Gulf, or through funds. In the United States, the SP Funds Dow Jones Global Sukuk ETF (SPSK) had $475.21 million in net assets on Oct. 14, 2026, according to SP Funds. Savers can also use Islamic bank accounts, explained in our guide to interest-free banking.
For the wider market, from Islamic banks to digital platforms, our guide to Islamic finance and fintech sets out the main players and rules.
Frequently asked questions
Are U.S. Treasury bonds halal? Under the Fiqh Academy and AAOIFI rulings, no: Treasuries pay interest, and AAOIFI’s standard applies to government bonds as well as corporate bonds.
Are prize bonds halal? Both the Fiqh Academy’s Resolution No. 60 and AAOIFI’s Standard No. 21 prohibit prize bonds.
Are zero-coupon bonds different? No. The Fiqh Academy treats the discount as a form of interest.
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