IsDB Leading the Sukuk Market from the Front with US$ 33 billion in Issuances To-Date

One of the aims of Sukuk is to reduce dependence on the Bank's own resources

The Bank's high credit rating (AAA) in terms of capital adequacy, financial performance, and project portfolio contribute effectively to attracting investments in its Sukuk

Sukuk issuances contribute to further development of Islamic capital markets
  • One of the aims of Sukuk is to reduce dependence on the Bank's own resources
  • The Bank's high credit rating (AAA) in terms of capital adequacy, financial performance, and project portfolio contribute effectively to attracting investments in its Sukuk
  • Sukuk issuances contribute to further development of Islamic capital markets

Dr. Bandar Hajjar, IsDB President, stated that the Bank has issued around US$ 33 billion worth of Sukuk since its first-ever issuance in 2003, of which more than 20 billion are outstanding. He added that the Bank is constantly seeking to innovate and expand its capacity to further lead the capital markets in order to cater to the dynamic needs of global investors.

The President pointed to the shift in the Bank’s operations financing structure, from full reliance on the Bank’s equity to a model that leverages on resource mobilisation from global capital markets. In this regard, a medium-term Sukuk program was established with a value of US$ 1 billion, increased to the current level of US$ 25 billion, which is essentially an umbrella that allows the regular issuance of Sukuk to mobilise resources from global capital markets. This program has obtained the highest credit rating (AAA) from the three global rating agencies (Standard & Poor's, Moody's and Fitch), and is currently listed on the Euronext Dublin Exchange, Nasdaq Dubai and Malaysia Stock Exchange (under the exemption scheme) for trading purposes. The positive rating of the Bank and its Sukuk program have increased investor confidence for IsDB to emerge as one of the leading Sukuk issuers in the global capital markets. Therefore, the Bank’s high credit rating (AAA) in terms of capital adequacy, financial performance, and project portfolio has contributed effectively to the demand for Sukuk issued by the Bank.

Dr. Hajjar added that one of the Bank’s objective in the financial markets is to promote the Islamic finance industry, and to support the development of Islamic financial markets and the benchmark Sukuk issuances of IsDB have contributed to that end. He said the Bank plays a leading role that promotes the development of capital markets through regular issuances. He said that some of the goals of the Bank, which established its name as a leading institution in the Sukuk market are (a) developing a liquid yield curve for the Bank's Sukuk, (b) enhancing the Bank’s profile global capital markets by setting a benchmark within the MDBs issuance market, (c) expanding capacity to mobilise resources to support development projects in IsDB member countries.

On the most important development sectors that the Bank supports through Sukuk issuance, he said that the Bank focuses on various development interventions such as financing medium and long-term projects in MCs, financing several sectors, such as agriculture, infrastructure energy, health, science-technology-innovation, etc. He added that, in recent years, the Bank has focused on sustainable development goals by mainstreaming them into its various development operations.

Dr. Hajjar described the structure of the Bank’s Sukuk, which is Sharia-compliant, as an “asset-based” structure that relies on the concept of Wakala investment, which meets the Sharia requirements in terms of trading and listing.

Dr. Hajjar stressed the importance of raising awareness among the global investors of the Bank’s Sukuk program and highlighting its vital role in providing the resources necessary for development in a Sharia-compliant manner. He said that the Bank, like other MDBs, undertakes regular investor roadshows to educate investors in various parts of the world, targeting central banks and investment agencies interested in investing in AAA instruments. 

These efforts have helped expand the investor base of the Bank's Sukuk which enhances subscriptions by investors from different markets all over the world.

The Sukuk issued by the Bank enjoys an equivalent regulatory treatment to issuances by other MDBs, the most important of which are:

  1. Recognition of the Bank by the Basel Committee for Banking Supervision and the Commission of the European Communities as a risk free MDB
  2. Recognition by the European Central Bank recognising the IsDB as an MDB
  3. The European Banking Authority's recognition of the Bank's instruments as “zero-risk”
  4. A high-credit instrument that can be used as a high-quality guarantee in the Bank’s operations by the Bank of England
  5. A highly liquid financial instrument by the UK Financial Conduct Authority.

Dr. Hajjar enlightened that the Bank’s new business model calls for leveraging innovative Islamic financing to enhance the capacity of Member Countries in their pursuit of SDGs. As a proof of its enthusiasm to include SDGs in its core operations, the Bank established a “Sustainable Finance Framework” which is in line with the principles of Green, Social and Sustainability debt principles as developed by the International Capital Markets Association (ICMA). This Framework is the foundation upon which the Bank relies on its issuances of Sustainability Sukuk, Green Sukuk, Social Sukuk, and other instruments to mobilise funds for specific projects that support the sustainable development goals in Member Countries. He said that the structure has been subject to review and evaluation by the Centre for International Climate and Environmental Research (CICERO), which is based in Norway, and has received a "Medium Green" shading rating that matches the classification of equivalent counterparts, such as the International Finance Corporation, the German KfW Group and the African Development Bank.

He added that within this framework, the Bank issued its first ever Green Sukuk in November 2019 to raise an amount of one billion euros. The proceeds of the issuance were used to finance a set of projects related to climate change and green projects in MCs such as renewable energy, environment friendly transport, energy efficiency improvement, pollution prevention and control, environmentally sustainable management of natural resources, land use, sustainable water and sanitation management projects. These were the first Green Sukuk to receive an outstanding credit rating of “AAA” in the global capital markets.

The IsDB President said that with the outbreak of COVID-19 pandemic, the Bank launched, in June 2020, the debut Sustainability Sukuk to mobilise US$ 1.5 billion from a wide range of investors to finance social projects in affected MCs.

The proceeds of these Sustainability Sukuk will be used in projects that enhance health care systems (UN-SDG 3), in addition to supporting job creation in MCs (UN-SDG 8). These were the maiden AAA rated Sukuk of their kind related to COVID-19 pandemic in the global capital markets.

The President concluded his speech by stating that the Bank launched its first issuance of Sukuk 17 years ago in 2003, with a standalone issuance in which US$ 400 million were raised. He added that since 2009, the Bank has started to issue regularly in benchmark sizes, and that the Bank has always sought to expand its investor base through entering new markets, targeting new currencies, and creating tools that keep pace with development in the capital markets, especially those related to SDGs.