The global sukuk market has surpassed the USD 1 trillion mark in outstanding issuances, achieving a significant milestone that affirms its role within the fixed income sector. The Dow Jones Sukuk Total Return Index (ex-Reinvestment), launched in April 2006, has served as a benchmark for measuring the global investment grade (IG) USD-denominated sukuk market during this journey.

Over the past decade, the notional amount of sukuk included in the index increased by 165%, increasing from USD 57 billion to USD 150 billion. Sub-sovereign issuances surged by 392%, almost doubling their weight in the index from 12% to 22%. Additionally, sovereigns from non-Muslim majority regions, such as Hong Kong and the Philippines, are also tapping into the market, reflecting a growing global interest in sukuk as a financing option.

What Sets Sukuk Apart?

The appeal of sukuk lies primarily in their Shariah compliance, which acts as a catalyst for increased demand and reduced volatility. Most sukuk investors are long-term, buy-and-hold Islamic institutions, including Islamic banks, insurers and pension funds, which are often required to hold sukuk for regulatory or Shariah compliance. This lowers speculative trading, resulting in sustained demand and lower volatility.

Exhibit 2 compares USD IG Sukuk (the Dow Jones Sukuk Total Return Index (ex-Reinvestment)) with conventional emerging markets debt (the iBoxx USD Emerging Markets Broad Investment Grade) and U.S. Treasuries (the iBoxx $ Treasuries). The sukuk index consistently demonstrated lower volatility and a higher return/risk ratio across all analyzed periods.

(Click on image to enlarge)

A Sovereign-Heavy Market Certified by Shariah Boards with Low Default Rates

Sukuk are typically structured and arranged by Islamic banks or financial institutions with their own Shariah boards to ensure compliance with Islamic principles. The issuance prospectus includes a section detailing the sukuk’s Shariah compliance.

The requirement for Shariah Board certification at issuance, along with the structuring, legal and compliance costs, creates a barrier to entry that tends to favor larger, higher credit-quality entities (such as sovereigns, sub-sovereigns and major corporates) in the sukuk market. Within the Dow Jones Sukuk Total Return Index (ex-Reinvestment), nearly 60% of the IG sukuk were issued by sovereigns and sub-sovereigns. Additionally, S&P Global Ratings reported that only 0.2% of sukuk defaulted between 2000 and 2024.¹

The Kingdom of Saudi Arabia Is the Largest Dollar and Local Currency Sovereign Sukuk Issuer

To support economic diversification projects under Saudi Vision 2030, the Kingdom of Saudi Arabia (KSA) has been actively issuing sukuk for financing while developing its local currency debt market. The iBoxx Tadawul SAR Government Sukuk Index tracks SAR-denominated sukuk issued by the KSA, with an outstanding amount of SAR 615 billion (USD 164 billion). As of July 31, 2025, the notional value of USD KSA sukuk in the Dow Jones Sukuk Total Return Index (ex-Reinvestment) was USD 23.7 billion, making the KSA the largest sovereign sukuk issuer in both USD and local currency markets.

Conclusion

In conclusion, the global sukuk market has reached a significant milestone of USD 1 trillion, with robust supply and demand dynamics. Historically, it has exhibited lower volatility and default rates, with Saudi Arabia playing a pivotal role in driving sukuk issuances. As the market grows and more non-Islamic issuers and market participants enter the space, liquidity and credit conditions may change. Evolving regulations and standards (e.g. the potential shift toward asset-backed sukuk under AAOIFI Standard 62) could reshape the market and influence how participants may adapt.

¹ Damak, Mohamed. “Your Three Minutes In Capital Markets: The Effects Of Sukuk Defaults,” S&P Global Ratings, Aug. 27, 2024.

More By This Author:

Free Cash Flow As A Proxy for Quality In Europe: Introducing the S&P Europe Quality FCF Aristocrats Index
Advisor Profile: The Rise Of The Index-Based Product Power User
An ESG Score Odyssey: Through The Lens Of The S&P 500