Despite increased investor interest, the growth of the global sukuk market is being held back by structural constraints, according to a report from ratings agency Fitch.
A lack of standards and ongoing legal problems concerning sharia compliance could mean growth in the asset class remains steady but unspectacular, stated the report.
As of the end of March, the volume of sukuk rated by Fitch stood at $80 billion, a 6% increase on the previous quarter. New sukuk issuance with a maturity of more than 18 months increased by 1% over the last 12 months to $14.9 billion.
State promotion of the asset class and continued innovations such as the first green sovereign sukuk, which was launched in Indonesia in February, have helped to boost the depth and liquidity of the sukuk market. However, variations in product structure and documentation, financial reporting, regulatory frameworks, sharia codification and dispute resolution have deterred some global investors, said Fitch.
The report also highlighted the difficulty of enforcing creditors’ rights in a number of Islamic finance jurisdictions. An example of a dispute concerning sukuk buyers is the ongoing legal battle between sukuk issuer Dana Gas and its investors.
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