Are sukuk the same as bonds?

Sukuk and bonds can deliver similar cash flows, but they are different instruments. A bondholder lends money to an issuer and is owed interest. A sukuk holder owns an undivided share of an asset, a service or a project, and receives the return that asset produces. That structure is what makes sukuk Sharia-compliant. In practice most sukuk still carry the issuer’s credit risk, so for an investor the economic difference is often smaller than the legal one.

Why were sukuk created?

Bonds are the backbone of most diversified portfolios: they provide a predictable income and tend to steady a portfolio when equities fall. Their return, however, is interest, which is riba and impermissible under Sharia. Sukuk were developed to offer a comparable fixed-income profile through a structure based on ownership and trade rather than lending.

AAOIFI, the standard-setting body for Islamic finance, defines investment sukuk in Sharia Standard No. 17 as certificates of equal value representing undivided shares in the ownership of tangible assets, usufructs and services, or of the assets of particular projects or investment activity. The standard took effect on 8 May 2003.

How does a sukuk work in practice?

Take a hypothetical airline, Fujairah Airways, that needs USD 1 billion to buy ten aircraft.

As a bond. The airline borrows USD 1 billion from investors, promises to pay 5% interest a year, and repays the principal after five years. If it fails to pay, bondholders have a claim on the company as creditors.

As an ijara sukuk. The airline sells the aircraft to a special-purpose company that issues sukuk certificates to investors for USD 1 billion. The airline then leases the aircraft back and pays rent, which flows to the certificate holders. At maturity the airline buys the aircraft back at an agreed price, and that payment returns the investors’ capital.

The investor receives rent rather than interest, and owns a share of the leased assets rather than a claim on a loan. That is why scholars accept the structure as compliant.

What are the main types of sukuk?

AAOIFI’s standard covers sukuk over leased assets, usufructs, services, sale contracts and partnerships. The most common in practice are:

Issuers often combine structures, usually called hybrid sukuk, for example mixing ijara assets with murabaha receivables. According to the IIFM Sukuk Report 2026, ijara was the leading structure in domestic markets in 2025, at 24.28% of issuance.

Asset-based or asset-backed: what do you actually own?

This distinction matters more to an investor than the structure’s name.

• Asset-based sukuk are the large majority. Investors own the assets in form, but the issuer gives a purchase undertaking to buy them back at face value at maturity or on default. In practice the investor relies on the issuer’s ability to honour that undertaking, so the sukuk is generally assessed on the issuer’s credit, much like senior unsecured debt.
• Asset-backed sukuk involve a true sale of the assets to investors without recourse to the originator. Investors depend on the assets’ performance, much like a securitisation, and are exposed to their value if things go wrong.

The debate over this distinction has a long history. In 2007 Sheikh Muhammad Taqi Usmani, then chairman of AAOIFI’s Sharia board, criticised repurchase undertakings at face value in partnership-based sukuk, and in February 2008 AAOIFI’s board issued guidance that tradable sukuk should represent real ownership of assets and that managers should not guarantee capital through repurchase at face value. Market practice adjusted, and the structures in use today reflect that guidance.

How large is the sukuk market?

Large and growing quickly. The International Islamic Financial Market’s IIFM Sukuk Report 2026, published in September 2026, records:

The UAE has become a significant issuer. The federal Ministry of Finance launched dirham-denominated Islamic Treasury Sukuk in May 2023, with the Central Bank of the UAE as issuing agent and the structure approved by its Higher Sharia Authority, and added a seven-year tranche in February 2026.

Sukuk have also entered the mainstream bond indices. Rated US dollar bonds and sukuk from GCC sovereigns and quasi-sovereigns were phased into J.P. Morgan’s EMBI Global and EMBI Global Diversified indices in 2019, so many conventional emerging-market bond funds now hold sukuk as a matter of course.

How do sukuk behave in a portfolio?

Much like bonds of the same issuer, maturity and currency.

• Interest-rate sensitivity. When market rates rise, the fixed distribution on an existing sukuk is worth less and its price falls. Longer maturities are more sensitive.
• Credit risk. An asset-based sukuk from a strong sovereign behaves like that sovereign’s bonds; a sukuk from a weaker corporate carries that corporate’s default risk.
• Liquidity. The sukuk market is smaller and less frequently traded than the conventional bond market, and many investors hold to maturity. Bid-offer spreads can be wider, particularly for smaller issues.
• Concentration. Issuance is concentrated in Malaysia, the GCC, Indonesia and Turkey, so a sukuk portfolio carries more regional and financial-sector exposure than a global bond index.

Our fixed income deep dive on price sensitivity explains duration and rate risk in more depth, and single-name bonds versus bond funds covers the trade-off between holding individual issues and a fund. Both apply to sukuk.

How should you hold sukuk?

For most individual investors, through a diversified sukuk fund or ETF rather than single issues. Individual sukuk often trade in large minimum denominations, and owning a handful concentrates issuer risk. A fund spreads that risk across many issuers and maturities and can be bought in smaller amounts. Check which Sharia board approves the fund, how it handles any cash, and its total cost.

Sukuk are one part of a broader halal portfolio alongside screened equities, Islamic savings and purification. Our guide to Sharia-compliant investing in the UAE puts the pieces together, and a Vault advisor can show how a sukuk allocation would fit your plan. Talk to us.

Sources

• AAOIFI, Sharia Standard No. 17, Investment Sukuk, effective 8 May 2003, aaoifi.com.
• International Islamic Financial Market, IIFM Sukuk Report 2026, 15th edition, press release 15 September 2026.
• Clifford Chance, advice to the UAE Ministry of Finance on the dirham Islamic Treasury Sukuk programme, 16 May 2023; WAM, first seven-year T-Sukuk tranche, February 2026.
• J.P. Morgan EMBI index inclusion of GCC bonds and sukuk, 2019, as reported by Gulf Times and Argaam.
• Arab News, coverage of AAOIFI Sharia board guidance on sukuk, February 2008.

This article explains how sukuk are structured. It is not a religious ruling or a recommendation of any security. Regulated by the FSRA, and registered in ADGM.