Sukuk, often called Islamic bonds, are certificates that give investors a share in the ownership of assets, a project or a business activity. Instead of interest, holders receive income those assets produce, such as rent or a share of profit, and are repaid when the issuer buys the assets back at maturity. In 2025, issuers sold about $263 billion of them.
This article was first published in April 2024. It has been rewritten with a step-by-step example of how an ijara sukuk works, a comparison of the main structures, 2025 market data from IIFM, S&P Global Ratings and Fitch Ratings, the status of AAOIFI’s draft Standard 62 and cases where sukuk went wrong.
Reviewed by Hafiz Maqsood Ahmed.
Sukuk are now a mainstream funding tool for governments. Global issuance reached $262.9 billion in 2025, up 28.2 percent, and outstanding sukuk passed $1 trillion for the first time, according to the International Islamic Financial Market’s 15th Sukuk Report, as reported by Zawya. Sovereign issuers accounted for 52.3 percent of 2025 volume, and Malaysia accounts for 43.69 percent of all sukuk issued since 2001, followed by Saudi Arabia and Indonesia, the report said.
How sukuk differ from conventional bonds
A conventional bond is a loan that pays interest. Islamic standard setters, including the International Islamic Fiqh Academy and AAOIFI, prohibit interest-bearing bonds, as explained in our analysis of whether bonds are Halal. 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.
| Conventional bond | Sukuk | |
|---|---|---|
| What the investor holds | A claim on a loan | A share in assets, a project or an activity |
| Source of payments | Interest | Rent, profit share or sale profit |
| Use of proceeds | Any lawful purpose | Must be Shariah-compliant |
| Oversight | Credit rating and trustee | Credit rating, trustee and a Shariah board |
How an ijara sukuk works, step by step
Ijara, a lease, is the most common structure in domestic markets, according to the IIFM report. A simplified version:
- The issuer, such as a government, sets up a special-purpose company that issues the sukuk to investors.
- The special-purpose company uses the money to buy an asset, such as buildings, from the issuer.
- It leases the asset back to the issuer.
- The issuer pays rent, which passes to investors as periodic distributions.
- At maturity, the issuer buys the asset back at an agreed price, and investors receive their capital.
Britain’s sukuk followed this model. Its 2021 issue raised £500 million and was backed by rent from government office buildings, according to the British government; it matured on July 22, 2026. Its first, a £200 million issue in 2014, drew orders of about £2.3 billion, the Treasury said.
The main structures
| Structure | How investors earn | Tradable at market prices? |
|---|---|---|
| Ijara (lease) | Rent on an asset they own | Generally yes |
| Murabaha (cost-plus sale) | Profit on goods resold on deferred terms | Generally no; represents debt, so traded at face value |
| Mudaraba (investment partnership) | Agreed share of profit from a business the issuer manages | Yes |
| Musharaka (joint venture) | Agreed profit share; losses by capital contribution | Yes |
| Wakala (agency) | Returns from a pool of assets managed for a fee | Depends on the asset mix |
| Hybrid | A mix, such as ijara and murabaha | Depends on the share of tangible assets |
The restriction on trading debt-based sukuk follows the rule that a debt may be transferred only at face value.
The market in 2025 and 2026
Estimates differ because each agency counts the market differently, so figures should always carry their source.
| Source | 2025 issuance | Other figures |
|---|---|---|
| IIFM | $262.9 billion | $1.015 trillion outstanding |
| S&P Global Ratings | $264.8 billion | 2026 forecast: $270 billion to $280 billion |
| Fitch Ratings | More than $300 billion (all currencies) | No sukuk defaults in four years; about 82.5% of rated sukuk investment grade |
Sources: Zawya (IIFM); Khaleej Times (S&P); Nukta (Fitch). Issuance reached $129 billion in the first half of 2026, S&P said in July, according to Business Today, with Malaysian local-currency issuance offsetting a slowdown in the Gulf, a shift covered in our report on Malaysia’s role in sukuk growth.
Green and sustainable sukuk are a growing segment. Indonesia issued the first sovereign green sukuk, worth $1.25 billion, in 2018, according to the U.N. Development Program. Fitch expects ESG sukuk outstanding to exceed $70 billion by the end of 2026, Bashar Al Natoor, its global head of Islamic finance, said, according to Business Today.
The risks
Credit risk. Most sukuk depend on the issuer’s ability to pay, just as bonds do. East Cameron Gas, a U.S. company that issued a $165.67 million musharaka sukuk in 2006 backed by gas royalties off Louisiana, filed for bankruptcy in 2008, and investors ultimately took title to the underlying leases, according to a case study.
Shariah risk. In 2017, Dana Gas said its $700 million mudaraba sukuk were no longer Shariah-compliant under UAE law; 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.
Structure risk. Many sukuk are “asset-based”: investors’ claims rely on the issuer’s promise to buy assets back, not on true ownership. In 2007, Sheikh Muhammad Taqi Usmani, then chairman of AAOIFI’s Shariah board, said about 85 percent of sukuk did not comply with Shariah for that reason, The Washington Times reported. AAOIFI’s draft Shariah Standard 62 would require actual transfer of ownership; AAOIFI put it on hold in November 2025, Enterprise reported, and it remained a draft in mid-2026, according to ACCA’s AB Magazine.
How individuals can invest
Most sukuk are sold to institutions in large denominations, but retail investors can buy them through funds and, in some countries, through government retail programs. 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. Sukuk sit alongside screened equities among the essentials of halal investing.
For the wider Islamic finance market, from banks to digital platforms, our guide to Islamic finance and fintech sets out the main players and rules.
Related reading: UAE Islamic Banks’ Assets Exceed $195 Billion
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