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KLIFF 2022 PROGRAMME BOOK

Sustainability Sukuk Are Becoming More Prevalent

Over the past six months, we note several sukuk transactions with a sustainability tag that have come to market (see chart 5).
From green to social, we expect to see higher volumes as issuers meet investors’ demands.

We see two main opportunities. First, many Islamic finance countries are developing and implementing strategies to transition
to green economies and these could imply future growth potential for green sukuk issuances. We expect to see some activity in
this space as issuers aim to remain on global investors’ radars. Second, the social aspects of Islamic finance remain appealing.
This is especially relevant with the economic effects of the pandemic and the Russia-Ukraine conflict continuing to surface in
the form of higher inflation and unemployment, especially in fiscally constrained countries.

Digital Sukuk Could Foster Greater Financial Inclusion

Digital sukuk could provide a quicker and cheaper way for issuers to tap Islamic finance markets due to the limited number of
intermediaries involved. The benefits may also include enhanced security, traceability, and integrity of the transaction, which
could further strengthen compliance with Sharia. However, this assumes the availability of reliable technology and the readiness
of legal frameworks to accommodate these instruments. It also requires the presence of standard legal documents that can be
used as a template for sukuk issuance.

Reducing the time, cost, and minimum issuance volume requirements in this way could open the sukuk market to a broader
range of issuers. Investors in digital sukuk will continue to bear traditional risks, however, including credit market and liquidity
risk. They will also be exposed to higher operational risks stemming from technology stability and cyber risks. In addition, they
would need a vehicle to transact digitally, such as a stable Islamic coin or a central bank digital currency.

Related Research

- Islamic Finance 2022-2023: Same Constraints, New Opportunities, June 6, 2022
- Growing Belief In Southeast Asia’s US$290 Billion Islamic Banking Market, May 11, 2022
- Lower Global Liquidity And Increased Complexity Are Likely To Hold Back Sukuk Issuance In 2022, Jan. 18, 2022

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