Guide to ijarah Sukuk tradability: Secondary market and Shariah requirements

In-Depth Analysis

One of the most significant advantages of Ijarah Sukuk over other Sukuk structures is their superior tradability on the secondary market. The ability to buy and sell Sukuk certificates freely is essential for investors who require liquidity and for the development of a deep and efficient Islamic capital market. The Shariah rules governing Sukuk trading are therefore of considerable practical importance. In Islamic jurisprudence, the trading of debt at a discount or premium constitutes Riba. This means that Sukuk backed predominantly by receivables (such as Murabahah receivables) cannot be traded freely — they must be exchanged at face value. However, Sukuk backed by tangible assets (like a building in an Ijarah structure) can be traded at any price the market determines, because the buyer is purchasing a share of a real asset, not a debt claim. AAOIFI and many Shariah scholars have established a tangibility threshold for Sukuk trading. The most commonly cited rule, endorsed by the Organisation of Islamic Cooperation (OIC) Fiqh Academy, is that at least 33% of the underlying Sukuk portfolio must be in tangible assets for the certificates to be tradable at market prices. Some scholars apply a stricter 51% threshold. In practice, well-structured Ijarah Sukuk typically have 100% tangible asset backing, making their tradability unambiguous. The secondary market for Sukuk has grown significantly but remains less liquid than the conventional bond market. Several factors contribute to this liquidity gap. Many Sukuk investors, particularly Islamic banks and Takaful operators, tend to hold Sukuk to maturity rather than trading actively. The relatively smaller issuance sizes compared to major conventional bonds also limit secondary market depth. Additionally, the fragmentation of Sukuk standards across different jurisdictions — with Malaysia, the GCC, and others applying slightly different Shariah interpretations — can create barriers to cross-border trading. Efforts to improve Sukuk liquidity include the development of Sukuk-specific trading platforms, the standardization of documentation through bodies like AAOIFI and the International Islamic Financial Market (IIFM), and the issuance of benchmark-sized Sukuk by sovereign issuers. The International Islamic Liquidity Management Corporation (IILM), established by multiple central banks, regularly issues short-term US dollar-denominated Sukuk specifically to provide a liquid instrument for Islamic financial institutions' liquidity management needs.