An Introduction to Islamic Finance: Theory and Practice

198 AN INTRODUCTION TO ISLAMIC FINANCE

CASE STUDY: ISLAMIC DEVELOPMENT BANK (CONTINUED)

The offering marks a major step for IDB’s future, diversifying its inves-

tor base into new accounts and establishing a strong benchmark for

IDB’s future issuances

Source: HSBC Amanah, Malaysia.

Limitations of the Sukuk Market^6

Sukuk issuance to date has been concentrated in Malaysia and the Middle
East, particularly in Bahrain. Outside of those two markets, the sukuk occu-
pies only a very small place in the capital markets landscape. We believe the
principal limitations on the development of the sukuk market are as follows.
First, the sukuk market suffers from a lack of frequent sovereign issues.
In particular, high - quality sovereign issues, which play an important role in
the development of all capital markets and serve the critical purpose of
building a benchmark yield curve for the market, are largely absent from
this market.^7 Without a benchmark yield curve, it is diffi cult for other issu-
ers and investors to access the market with confi dence.
Second, many investors in this market tend to buy and hold sukuk
investments until maturity, and, as a result, there is almost no secondary
market in most sukuk issues. The prevalence of “buy and hold” investors
in this market is largely a consequence of an acute lack of supply such that
investors know that if they sell the sukuk it will be diffi cult to fi nd another
to replace it in their portfolio.
Third, and directly related to the point above, the lack of liquidity of
most sukuk issues hampers the growth of the market. Investors that place
a high value on liquidity may avoid sukuk entirely because of the absence