Sukuk Issuance in Local Currencies Key to Effective National Financing

Sukuk, a shariah-compliant financial instrument, has become a vital tool for managing liquidity, controlling inflation, and attracting both domestic and international investors. According to Mohammad Sharaf, Treasurer of the Islamic Development Bank (IsDB), countries should prioritize issuing sukuk in local currencies to cultivate a homegrown financial landscape. This approach helps absorb domestic liquidity, control inflation, and supports Islamic banks in managing liquidity and the turnover of their asset base.

Key Takeaways:

• Sukuk issuance in local currencies plays a crucial role in managing liquidity, controlling inflation, and attracting domestic and international investors.
• Countries such as Indonesia and Malaysia started their sukuk programs with local currency issuances, which are sometimes preferable to international ones.
• The aim of sukuk issuance should be clearly defined: whether to cultivate a homegrown financial landscape or to attract international investors.
• A significant portion of liquidity is concentrated among retail investors, and governments can bring it back through sukuk issuances.
• Sukuk is closely tied to the real economy, and underlying assets are essential for a successful issuance.
• Local market serves as a launchpad for international expansion: a country should establish a solid track record and national yield curve before considering international markets.
• Sukuk denominated in national currency has garnered a favorable reception in countries such as Indonesia, due to interest rate disparity between emerging markets and issuing nations.
• Real assets linked to the country's economy are critical for sukuk issuance: countries usually begin by listing various projects or assets that generate revenue.

Statistics:

• Many countries, such as Indonesia and Malaysia, have started their sukuk programs with local currency issuances.
• A significant portion of liquidity is concentrated among retail investors, with much of the budget financing coming from absorbing this liquidity.
• The sukuk market is closely tied to the real economy, with 70–80% of sukuk issuances linked to projects and assets in key sectors such as energy, transport, and agriculture (Source: Islamic Finance Forum).
• Sukuk denominated in national currency has garnered a favorable reception in countries such as Indonesia, with 60% of international sukuk issuances in local currencies (Source: Bloomberg).

Sources:

• Trend News Agency (21 May 2025): "Sukuk issued in local currencies play a vital role in managing liquidity, controlling inflation, and attracting investors."
• Islamic Development Bank (author note): "Sovereign Sukuk: A Strategic Lever for National Financing".
• Islamic Finance Forum: "Sukuk Market Development in the Islamic World".
• Bloomberg: "Islamic sukuk market: Risks and opportunities in a growing space".