Why Sukuk Issuance Hit $200B in 2025

The $200 billion headline you saw everywhere in early 2026 is real, but it is also softer than it looks. Sukuk issuance totals are one of those numbers where three respectable data providers will hand you three different answers for the same year, and the gap between them is bigger than the entire annual issuance of most sovereign sukuk programs. Understanding why the number moved in 2025 matters more than the number itself, and the composition tells you something specific about where Shariah risk is concentrating right now.

Why the trackers disagree on the headline

The first thing to sort out is what counts. S&P Global Ratings, LSEG (the old Refinitiv Islamic finance data), IIFM and Fitch all publish annual sukuk tallies, and they diverge mainly on short-term paper. Bank Negara Malaysia runs regular short-tenor Islamic money-market issuance. The International Islamic Liquidity Management Corporation in Kuala Lumpur rolls a dollar-denominated program in maturities of roughly one to twelve months, reissuing the same capacity several times a year. Count every roll and you can add tens of billions of notional to the annual figure without a single new borrower entering the market.

So when you see "record issuance," check whether the tape includes short-term rollovers, and check whether it counts local-currency domestic auctions or only the internationally distributed piece. The slice that actually matters to a non-Malaysian investor is hard-currency sukuk, overwhelmingly US dollar, which is a minority of the total headline and where the record-setting genuinely happened over the past two years. Saudi Arabia and the Islamic Development Bank dominate that end. Malaysia dominates the raw count.

What actually pushed 2025 higher

Cheaper oil, bigger deficits

Gulf sukuk supply is close to a mirror image of the oil price. Brent spent much of 2025 well below the fiscal breakeven levels most GCC budgets assume, and Saudi Arabia in particular was funding a wide deficit alongside Vision 2030 commitments that nobody wanted to slow down. The National Debt Management Center runs a monthly riyal-denominated sukuk program plus opportunistic dollar issuance, and it leaned on both. That is the single largest identifiable driver of the increase, and it is cyclical rather than structural. If oil recovers meaningfully, that supply thins out.

Oman, Bahrain and Egypt all have their own version of this arithmetic at smaller scale. Egypt's sovereign sukuk debut in early 2023 opened a door that its finance ministry has kept using, and Turkey's lease certificate program (kira sertifikası) has been a standing funding channel for years rather than a novelty.

The Standard 62 clock

The more interesting driver is regulatory. AAOIFI, the Bahrain-based accounting and Shariah standard setter, has been working through a revision to its sukuk standard, circulated as draft Standard 62, which would tighten the requirement that sukuk holders take genuine ownership of underlying assets rather than merely a contractual claim dressed in asset language. The exposure draft has been through consultation, the effective date has slipped more than once, and rating agencies published research on what a strict reading would do to recovery assumptions and to the debt-versus-equity classification of existing structures.

Issuers do not enjoy that kind of ambiguity. A reasonable inference (this is judgment rather than anything AAOIFI has stated) is that some 2025 supply was pulled forward by borrowers who preferred to price under known rules. That is the kind of driver that borrows from next year rather than adding to it.

Where the Shariah risk actually sits

The structure matters far more than the label. Roughly speaking, sukuk fall into lease-based (ijara), sale-based (murabaha, salam, istisna), partnership-based (mudaraba, musharaka) and agency-based (wakala) families, plus hybrids that combine a tangible asset pool with a receivables pool.

Asset-based versus asset-backed

Almost all sukuk that trade internationally are asset-based rather than asset-backed. The certificates are priced off the originator's credit, there is a purchase undertaking obliging the originator to buy the assets back, and the true sale that would let holders seize the asset in a default frequently does not survive legal scrutiny in the relevant jurisdiction. The Golden Belt 1 sukuk issued for Saudi Arabia's Saad Group and defaulted in 2009 is the standing example of how thin that asset claim can be.

Then there is Dana Gas. In 2017 the UAE energy company argued its own mudaraba sukuk had become non-compliant under UAE law and therefore unenforceable, which was an unusually direct test of whether the compliance wrapper or the English-law purchase undertaking governs. The English courts upheld the purchase undertaking, and the matter settled in 2018. The practical lesson is that when a sukuk goes wrong, you end up litigating an English-law contract rather than laying claim to a warehouse.

This is also the live tension in AAOIFI's Shariah Standard No. 17 and the February 2008 pronouncement associated with Sheikh Muhammad Taqi Usmani, which held that mudaraba and musharaka sukuk cannot carry a purchase undertaking at face value because that manufactures a guaranteed principal out of what is supposed to be a profit-and-loss partnership. Ijara sukuk were treated differently, since a lessor buying back a leased asset at an agreed price is a different transaction. Plenty of structures in the market still lean on wakala wrappers precisely because they sit in the gap this pronouncement left.

Tawarruq and the trading question

Two long-running scholarly splits determine what a given sukuk is actually worth to you, and the first is organized tawarruq. The International Islamic Fiqh Academy, at its 19th session in Sharjah in 2009, resolved that organized and reverse tawarruq are impermissible because the commodity leg is a fiction arranged by the bank on both sides. Many Gulf financial institution sukuk still rest on commodity murabaha mechanics that look a lot like what the Academy described, and individual bank Shariah boards continue to approve them. You will find respected scholars on both sides, and neither camp has moved much in fifteen years.

The second is bai al-dayn, the sale of debt. Malaysia's Shariah Advisory Council of the central bank permits trading debt receivables at a negotiated price, which is what makes a deep secondary market in murabaha-based Malaysian paper possible. Most GCC scholars reject it, holding that a pure receivable can only change hands at par. This is exactly why a Malaysian ringgit murabaha sukuk that is uncontroversial in Kuala Lumpur may be unbuyable for a Riyadh or Doha mandate. The usual workaround is a hybrid pool where tangible assets make up a majority of the portfolio (a 51 percent tangibility threshold is the common convention, with some boards demanding more), so that the certificate trades as a claim on assets rather than on debt.

If you are comparing individual instruments or funds, our screening methodology walks through how structure and underlying-asset tests get applied rather than trusting a compliance stamp on the cover page.

How sukuk lands under the other frameworks

Under Islamic screening the verdict is genuinely structure-dependent. A sovereign ijara sukuk backed by identifiable state assets, with no purchase undertaking problem and a tangible asset majority, is about as clean as fixed income gets. A financial-institution wakala sukuk running on organized tawarruq is defensible under some boards and rejected under others, and you should know which board approved yours.

For Christian BRI investors, the interest question does not arise, since biblically responsible screening has never treated interest as prohibited. The six BRI categories look through to what the money funds: abortion, pornography, anti-family entertainment, alcohol, tobacco and gambling, human rights and trafficking exposure, and lifestyle issues. That makes a sukuk financing a casino-adjacent hospitality development a problem, and it makes sovereign sukuk from states with serious human rights records a judgment call under the human rights category rather than an automatic pass.

Catholic investors applying the USCCB Socially Responsible Investment Guidelines, revised in 2021, reach a similar place. The exclusions target abortion and contraception, embryonic stem cell research and human cloning, pornography, and indiscriminate weapons including landmines and nuclear arms, alongside affirmative concerns for labor, human dignity, environmental stewardship and economic justice. A sovereign or utility sukuk clears the exclusion list comfortably. Financing for a defense contractor's ordnance line would not, whatever its Shariah certificate says.

Jewish investors get an interesting result. The prohibition on ribbis under halacha binds lending between Jews, with the Bais HaVaad two-tier framing separating biblical ribbis ketzutzah from rabbinically prohibited avak ribbis, and the standard commercial workaround is the heter iska, which recharacterizes a loan as a joint business venture with a profit-sharing return. That is structurally very close to a mudaraba or musharaka sukuk, two legal traditions arriving at much the same piece of engineering.

For Latter-day Saint investors there is no denominational exclusion list to apply. The relevant counsel is Dallin H. Oaks' 1971 Ensign warning against speculation and the long-standing emphasis on avoiding unnecessary debt and living within means. Investment-grade sovereign sukuk held for income sits about as far from that warning as an asset can. Leveraged sukuk funds or high-yield frontier issuers are where the caution bites.

What this means if you are actually buying

Supply at this level means you no longer have to reach for credit quality to get exposure, which was a real constraint a decade ago. Practically, the choices are direct hard-currency sovereign and quasi-sovereign sukuk, the Islamic Development Bank's AAA-rated paper, or a fund wrapper. The main US-listed pure-play vehicle is SP Funds' Dow Jones Global Sukuk ETF (SPSK), and there are UCITS options such as Franklin Templeton's global sukuk fund for European and Gulf investors. Note that the old claim of an iShares sukuk ETF circulates online and does not correspond to a product BlackRock actually launched.

Two practical checks. First, read the structure rather than the ticker. Pull the offering circular and find out whether the pool is ijara, wakala, hybrid or largely murabaha, and what the tangibility ratio is. Second, watch the Standard 62 timeline, because if a strict ownership-transfer requirement lands, some existing asset-based paper gets repriced on recovery assumptions rather than on any change in credit. You can line up sukuk-heavy funds against conventional bond alternatives on our comparison tool, and sanity-check a fixed-income sleeve against the rest of your holdings in the portfolio screener.

The Bottom Line

Sukuk issuance near $200 billion in 2025 was mostly a Gulf deficit story with a regulatory deadline pulling supply forward, and the tally you see depends heavily on whether short-term Malaysian and IILM rollovers were counted. The one thing to hold onto: almost every internationally traded sukuk is asset-based rather than asset-backed, so your recourse in a default runs through an English-law purchase undertaking against the originator's balance sheet, and the compliance question turns on structure, tangibility ratio and which Shariah board signed off. Under Christian, Catholic, Jewish and Latter-day Saint frameworks the instrument itself is unproblematic, and the screening work shifts entirely to what the proceeds finance.

This is educational research rather than a religious ruling or personalized investment advice, so confirm any specific holding with a qualified scholar or advisor before you act on it.