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Islamic bonds see growth amid oil price surge

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High oil prices are a key driver of this growth of Sukuk.

As uncertainty looms large in the global economy due to the Russia-Ukraine crisis and its resultant economic implications, the Islamic bonds continue with its growth run.

In fact, a Bloomberg analysis found that Sukuk is seeing a warm reception from investors and had the best start of the year since 1999. This after in 2021, the Islamic bond market recorded a growth of 39% from the previous fiscal on the back of a post-pandemic recovery across the globe to reach the $250 billion mark.

Sukuk are the equivalent of ownership bonds that complies with Islamic laws of Sharia.

A report published by the news agency cited HSBC and Deutsche Bank officials saying that the high oil prices, which is a fallout of this war, is a result of the interest from the buyers.

Saudi Arabia and Turkey are the biggest markets for this investment product. In the calendar year 2021, Saudi Arabia issued $32 billion worth of Sukuk beating Malaysia, the second-highest by a margin of $6 billion.

According to the Bloomberg data, the Islamic Sukuk market suffered a 4% drop in investment-grade ratings while western bonds were downgraded by 7% in 2022. A Fitch Rating study too found that US dollar-denominated Sukuk issued in emerging markets were less exposed to risks than that bonds. A Fitch index of Sukuk in these markets also outperformed the bonds index for the first quarter of 2022.

Incidentally, in these uncertain times, some countries like Egypt are issuing their own sovereign Sukuk. According to a Reuters report, Egypt will issue its first such sovereign guaranteed Sukuk before the end of June 2022, when the country’s financial year ends.

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