The term “sukuk bond” is a slightly odd one. Bonds are usually associated with interest payments. Sukuk refers to a financial instrument that complies with Islamic investment principles, which prohibit interest payments.
Yet the market for such dollar-denominated debt-like instruments has grown in the past decade. According to Thomson Reuters, just over $19bn has been raised in the sukuk market so far this year. Activity peaked in 2007 at nearly $25bn.
The appeal of the market has grown beyond banks and companies which want funds that meet Islamic guidelines, and beyond investors who only buy such products. Investors in the US and Europe have started to buy sukuk bonds to gain exposure to Middle Eastern banks, for example. Less than a month ago, the sector marked a milestone: General Electric's financing arm became the first western industrial company to issue a sukuk bond, with a $500m deal completed as it sought to attract a new pool of investors.