Sukuk: a potential for stability and development in the GCC

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Taoual, Safiyah (2016)
  • Publisher: Faculty of Arts and Social Sciences, Kingston University
  • Subject: economics

This paper explores the significance of Islamic Sukuk instruments for stability in the GCC. As a result of the financial crisis of 2007-2008, interest in financial stability has increased. Islamic scholars suggest that Islamic financial institutions and products have the potential to contribute in achieving a more stable economic environment. This paper analyses Sukuk, an Islamic financial instrument with both bond and equity traits; and how it can contribute to achieving a more sound and resilient economic environment in the GCC. Findings suggest that Sukuk do have the potential to effectively contribute to the GCC’s economic stability; as long as they adhere to the pure Islamic financial principles and avoid trying to be comparable to conventional bonds. Currently, however there appears a heavy reliance on shorter term issuances, along with the majority of issuances in the USD, a heavy reliance on real estate as both a means of financing an underlying collateral in Islamic securitization; elements which could be destabilising especially during destress. The originality of this paper lies in its empirical contribution, as it, for the first, time sets out systematically the characteristics of Sukuk issuance in the GCC region with respect to Sukuk maturity, issuance currency and sectoral distribution. It also assesses the various Sukuk structures and the underlying risks involved; as well as the impact of collateral in Islamic securitization.
  • References (8)

    Figure 11: Proportion of Islamic securitization transactions by collateral type (2003-2013)

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    EY, 2015 . Global demand for Sukuk to reach US$900bn by 2017. Available at: < http://www.ey.com/NN/en/Home/PR_EY--Global-demand-for-Sukuk-to-reach-US-900bn-by-2017> Winjnber.S & Zaheer.S., 2013. Sukuk Defaults: on Distress Resolution in Islamic Finance. July 2013. Availabel at: < http://papers.tinbergen.nl/13087.pdf >

    Wilson.R. 2008. Innovation in the structuring of Islamic Sukuk securities'. Humanomics Journal. Vol. 24 No. 3, 2008

    Table 1 Main Sukuk types (Lackman, 2015; Kammer et al, 2015 )

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