The Global Sukuk Market:
Developments and Prospects
DIFC Forum
Dubai – 14th of May - 2007
Armen V. Papazian, PhD
Senior Vice President
Innovation and Development
OUTLINE
• The Global Sukuk Market
• Shariah Compliant Valuation?
• A Shariah Compliant Discount Rate?
• A Sukuk Yield Curve?
• A Framework for the Future
THE GLOBAL SUKUK MARKET
Data
The numbers and values reported here have been collected from well known
Services such as ZAWYA and IFIS, and complemented with other direct sources:
Stock Exchanges, Investment Banks, Primary Issuers, Securities Commissions…
Most importantly, we have individually verified and checked our data entries.
When necessary, through direct communication with the relevant entities
Involved in the issue.
The Data has been collected and put together by DIFX researchers on behalf of
The Department of Innovation and Development.
Our Confidence Level: 95%
Methodology
• All issues reported here are issued Sukuks. We do not take into account
announced or rumored Sukuks.
• The list includes Sukuks that have already matured.
• The year 2007 includes the months of January to April.
• If part of the same offering circular or principal term sheet, the tranches are
clubbed together as one issue even if with different maturities and yields.
• The US $ values of Sukuks denominated in a local currency were found by
using the average monthly exchange rate of the month during which the Sukuk
was issued.
Number of Sukuks – Worldwide – (2001- 2007)
450
412
400
350
300
250
200
150
100
50
0
2001-2007
Total Number of Sukuks – Per Year - Worldwide
120
103
100
94
80
77
60
33
40
44
36
20
25
0
2001
2002
2003
2004
Year
2005
2006
2007
Total Sukuk Values (USD millions) - Per Year - Worldwide
30000
25544.32
25000
20000
15000
13368.49
10000
8468.27
4462.11
5000
4968.69
6396.65
0
6978.17
2001
2002
2003
2004
2005
2006
2007
Listed – Not Listed – Total: Numbers
450
412, 100%
400
353, 85.7%
350
300
250
200
150
100
59, 14.3%
50
0
Listed
Not
Total
Listed – Not Listed – Total: VALUES (USD Millions)
80000.00
70186.7, 100%
70000.00
60000.00
47119.79, 67.13%
50000.00
40000.00
30000.00
23066.91, 32.87%
20000.00
10000.00
0.00
Listed
Not
Total
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Listed Sukuks: Numbers per Market
16
14, 24%
15, 25%
14
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10
8, 14%
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Listed Sukuks by Market: VALUES (USD Millions)
9000
7630, 33%
8000
7000
6000
5000
3755,16%
4000
2893, 12.5%
3000
1461.35, 6% 2000, 9%
2000
1000
450,2%
100, 0.5%
200, 1%
1050,4.5%
750,3%
750, 3%
800,
850,4% 3.5% 211.86,
1% 165.7,1%
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Major Sukuk Types (2001-2007)
Sam ple: 410
Bai’Bithaman Ajil
32, 8%
Ijara
103, 26%
Istisna
Mudharabah
114, 29%
MURABAHA ISSUES
MUSHARAKA
17, 4%
12, 3%
98, 24%
Major Sukuk Types in 2006
Sam ple: 103
Bai’Bithaman Ajil(BBA)
8, 8%
Ijara
16, 16%
Mudharabah
MURABAHA ISSUES
37, 36%
MUSHARAKA
30, 29%
Shariah Complaint Valuation?
Time Value of Money
Risk and Return
A Shariah Complaint Discount Rate?
The Principle of Risk and Return applies to all instruments.
The Discount Factor of TVM still Applies
DF = 1/ (1 + i)
This is so because it is a tool that allows us to take into account the
Opportunity cost (Discount Rate) over time.
However: the nature of the Discount Rate used to discount future cash
flows needs to be different.
0.08
?
0.08
8%
8%
Interest
Return
Capital + Time
Productive Activity
(Capital + Other Resources)
An Islamic or Shariah Compliant Discount Rate is a % REAL RETURN
That is gained on an alternative investment with the same level of Risk.
A Real Return is a return that is earned on
an investment that involves more than just
Capital + Time.
ALTERNATIVELY, an Islamic or Shariah Compliant Discount Rate is the
RETURN earned on an alternative Shariah Complaint Instrument with the
same level of Risk.
A Sukuk Yield Curve?
As an important indicator of short and long term interest rates, a Sukuk Yield
Curve could be a useful tool, and the building of a Sukuk Yield Curve
might be a worthwhile exercise?
Questions:
Do we need a Sovereign Entity to issue 3m, 6m, 1y, 2y, etc…. Sukuks?
Which Sovereign?
Which Type of Sukuk?
Framework for the FUTURE
Innovation
Accessible
Standardized
Form
Substance
Customized
Exclusive
Camouflage
Shariah Compliance
The Sukuk Market is beyond any doubt an exciting Market to be in.
The prospects and limits lie in our own imagination.
As for Islamic Finance as a whole,
The resources we dedicate and the objectives we seek will determine
Whether we will end up with a Market Segment or an Alternative System.
Thank You!
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