192 AN INTRODUCTION TO ISLAMIC FINANCE
launch of musharakah bonds was in Turkey in 1984 to fi nance the con-
struction of a toll bridge in Istanbul.
Being based on profi t/loss - sharing principles, both muqaradah and
musharakah bonds are ideal for the promotion of Islamic fi nance. However,
although the issuers of these bonds are public - sector institutions, the low
transparency that prevails in the affairs of governments of several Muslim
countries keeps investors away from this structure. With enhanced moni-
toring and transparency, and with a reduction of asymmetrical informa-
tion, these bonds could make a greater contribution to the development of
Islamic capital markets.
Table 9.3 summarizes comparative features of the four most prevalent
sukuk structures. This demonstrates how different structures provide differ-
ent risk/return profi les and can be customized to meet the needs of borrow-
ers as well as of investors.
The Sukuk Market
The market for the sukuk was originated by government entities and
although the market is still dominated by the sovereign issues, corporate
issues are gradually emerging. In terms of total amount outstanding, the
current ratio between sovereign and corporate sukuk is 3.5:1. With a grow-
ing sukuk market, many conventional rating agencies, including Standard &
Poor’s (S&P) and Fitch, have started to rate select issues. For example, S&P
has now designed a methodology to rate ijarah - based sukuk. In another
positive development, Dow Jones has announced plans for a Sukuk Index to
monitor the performance of this market. Another particularly encouraging
sign in the sukuk market is that it is no longer the sole preserve of specialist
Islamic issuers or investors. For example, 48 percent of a recent sovereign
issue was subscribed for by conventional investors, comprising 24 percent
by institutional investors, 11 percent by fund managers and 13 percent by
central banks and government institutions.
Table 9.4 lists the top 10 investment banks (lead managers) that were
active in underwriting sukuk issues during the period 2005–10. The major-
ity of these are based in Malaysia, refl ecting the major role played by that
country in developing the sukuk market. Another notable performance is
by the Hong Kong and Shanghai Banking Corporation’s (HSBC) Islamic
investment entity — Amanah — which has also played an important role in
the development of this market.
The sukuk market has been used by both public (sovereign and quasi -
sovereign) and corporate entities. Table 9.5 lists the number of sukuk issues
by sector and Table 9.6 shows the size of these issues by issuer type. As
compared to conventional fi nance, where government and sovereign sec-
tors dominate, the sukuk market shows little activity by sovereigns and this
serves to hinder the establishment of a benchmark which can be used to price
private sector or corporate issuers. The sukuk market suffered during the
2008–09 fi nancial crisis and economic slowdown but rebounded in 2010.