The record growth rates achieved by the Sukuk industry between 2001 and 2007 were impressive. The 2008 crisis came as a reality check for all markets and players, reshaping the priorities of governments, banks, issuers, and investors. As a result, the number and value of issued Sukuk has come down significantly and the momentum of past years is yet to be reinvented. Although the 2008 financial crisis created tight liquidity environments in many markets, the key and most daunting challenges of the industry come from within its structures and the institutional architecture of what we have come to describe as the Sukuk market.
Market infrastructure and product cash flow
Following the principles of Islamic finance and the prohibition of interest, Sukuk have been structured in a variety of ways either to overcome or to incorporate this important starting principle. As such, the recent verdicts branding a significant number of Sukuk as 'non-Islamic' have caused a sense of intellectual and practical hesitation in the market. The questions regarding the veracity of Sukuk structures raise an important paradox.
The market infrastructure that has supported, distributed, invested, and managed Sukuk in the past and present has been the debt capital market infrastructure of global, regional, and domestic banks. The investor base of Sukuk has been expanding and growing in terms of geographical origin, but across the board, Sukuk investors have been debt capital market investors.
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