​KembaraXtra – Islamic Finance – Sukuk: Ṣukūk Targeting Various Market Segments

Overview
​The Ṣukūk market has expanded beyond its traditional base of Islamic banks and institutional investors. A notable recent trend is the deliberate targeting of new and specialised investor segments, especially those aligned with ethical, sustainable, and socially responsible values. This development reflects the growing alignment between Islamic finance principles and global responsible investment practices.

1. Sustainable and Responsible Investment (SRI) ṢukūkWhat Are SRI Ṣukūk?SRI Ṣukūk are Islamic securities issued to finance projects that meet environmental, social, and governance (ESG) objectives. They sit at the intersection of:

• Islamic finance, and
• The Sustainable and Responsible Investment (SRI) market.

Their primary aim is to mobilise capital for initiatives that deliver positive social and environmental outcomes while remaining fully Sharīʿah-compliant.
Link with the Global Green Bond MarketIn conventional finance, comparable instruments include:

• Green bonds,
• Climate bonds, and
• Social impact bonds.

These instruments typically finance:

• Renewable energy,
• Energy efficiency,
• Low-carbon technologies,
• Climate change mitigation and adaptation.

The green bond market has grown rapidly, rising from USD 13 billion in 2013 to USD 37 billion in 2014, and is expected to continue expanding as ethical investing becomes more mainstream.

2. Green / SRI Ṣukūk InitiativesTo capitalise on this opportunity, collaborative efforts have been established to promote green and SRI Ṣukūk. One such initiative is the Green Sukuk Working Party (GSWP), whose objective is to:

• Encourage the issuance of green and SRI Ṣukūk, and
• Channel investments into renewable energy and environmentally friendly assets.

Several jurisdictions, particularly in the Gulf region, have positioned themselves as potential hubs for green Ṣukūk issuance, including the United Arab Emirates and Dubai.

3. First SRI Ṣukūk in Islamic Finance: IFFImThe first SRI Ṣukūk in Islamic finance was issued by the International Finance Facility for Immunisation (IFFIm).
Key Details

• Issued in December 2014,
• Amount: USD 500 million,
• Tenure: 3 years (matured in December 2017),
• Purpose: to fund global health and immunisation programmes implemented by Gavi in the world’s poorest countries.

Significance

• The Ṣukūk was oversubscribed, reflecting strong investor demand,
• It demonstrated the viability of SRI Ṣukūk as a distinct asset class,
• It reinforced the role of Islamic finance in supporting global social development.

4. Malaysia’s Leadership in SRI ṢukūkRegulatory FrameworkMalaysia has played a leading role in advancing the SRI Ṣukūk market. In August 2014, a dedicated SRI Ṣukūk framework was introduced to facilitate financing for sustainable and socially impactful initiatives.
Khazanah’s SRI Ṣukūk

• First issued in June 2015 by Khazanah Nasional Berhad,
• Issued through a special-purpose vehicle, Ihsan Sukuk Berhad,
• Programme size: RM 1 billion,
• First tranche: RM 100 million.

Use of proceeds:
Funds were channelled to support financial and social inclusion programmes run by Yayasan Amir, a Malaysian not-for-profit foundation.
Impact:

• Strengthened Malaysia’s green and social finance ecosystem,
• Demonstrated how Ṣukūk can finance measurable social outcomes.

5. Diaspora Bonds and the Future Potential for Diaspora ṢukūkDiaspora Bonds in Conventional FinanceDiaspora bonds are issued by governments to their citizens living abroad, relying on:

• Patriotism,
• Emotional attachment,
• Long-term ties to the home country.

Countries such as India and Ethiopia have used diaspora bonds successfully, particularly during periods when access to international capital markets was constrained. Other countries, including Nigeria, Kenya, and the Philippines, are exploring similar instruments.

Prospects for Diaspora Ṣukūk

• To date, diaspora Ṣukūk have not yet been issued.
• However, Islamic finance structures backed by foreign remittance flows have been used in some jurisdictions, such as Pakistan.
• This suggests that diaspora Ṣukūk could emerge as a future market segment within Islamic capital markets.

Simple Exam-Friendly Summary

• Ṣukūk markets are expanding into new investor segments.
• SRI Ṣukūk integrate Islamic finance with ESG and ethical investing.
• The first SRI Ṣukūk was issued in 2014 and was oversubscribed.
• Malaysia has been a pioneer in SRI Ṣukūk development.
• Diaspora bonds exist in conventional finance; diaspora Ṣukūk may develop in the future.

Key Takeaway
By targeting sustainable, ethical, and socially conscious investors, Ṣukūk have evolved beyond traditional financing tools into instruments that support environmental protection, social development, and global sustainability, positioning Islamic finance as a meaningful contributor to the future of responsible finance.