Critical Factors for Stimulating Private Sector Sukuk Markets

Sukuk issuances remain the most rapidly growing area of Islamic finance, a trend that shows no signs of abating in the near future. True private sector sukuk issuances - particularly rated issuances - and those outside the financial services (particularly the banking) area - are rare. Those that exist are largely issuances by sovereign-controlled entities or are otherwise dependent upon sovereign credits somewhere in the structure. This paper identifies certain categories of factors that inhibit these private sector issuances. The factors discussed are (a) bankruptcy and insolvency issues, particularly pertaining to the use of special purpose entities, true sales, and substantive consolidation, (b) collateral security issues, and (c) systemic legal structures, processes and procedures. Suggestions are made for both longer-term reforms and, more immediately, reorientation of the private sector issuance process