Indonesia and Malaysia drive record growth in Islamic bonds
Global sukuk issuance is projected to reach $9 trillion by 2029, with Southeast Asia supplying half the market, new study shows bonds grew financing rather than splitting it
SERANG, Indonesia (MNTV) — Global issuance of sukuk — Islamic investment bonds structured to comply with the religion’s ban on interest — is projected to rise from about $6 trillion in 2024 to $9 trillion by 2029, with Malaysia and Indonesia driving the growth.
Southeast Asia accounts for around 51 percent of total global sukuk issuance, the outlet IDN Financials reported. Governments and state-linked institutions dominate the market with a 53 percent share, followed by companies at 38 percent.
New research helps explain how the bonds expanded finance rather than merely dividing an existing market.
A study co-authored by University of California, Riverside finance professor Jean Helwege, published in the Journal of Financial Economics, examined two decades of Malaysia’s corporate bond market after the country introduced Shariah-compliant bonds in 1997.
Rather than replacing conventional bonds, the securities broadened the investor base by drawing in people and institutions who would not buy interest-bearing debt.
“People did like to buy them, but it didn’t make the conventional bonds go away,” Helwege said.
“There’s more financing overall, and it does seem to have been helpful to the growth of the Malaysian economy.” Because Islamic law bars interest, sukuk are built around profit-sharing or asset-based arrangements that produce cash flows economically similar to conventional bonds, and cannot fund activities such as gambling.
Many Malaysian companies issued both types, reaching conventional investors and Islamic investors in the Gulf and elsewhere at once. Issuance of Islamic corporate bonds rose from under $2.5 billion a year in the late 1990s to more than $20 billion by 2017, while conventional issuance held steady.
The next phase of growth may run through artificial intelligence. Maya Puspa, an associate professor at Malaysia’s INCEIF University, which specializes in Islamic finance, said AI could accelerate the modernization of sukuk structuring and the development of digital crowdfunding models.
Speaking at a symposium on AI in Islamic finance, she said the technology can measure the yield gap between corporate sukuk and government bonds — a key gauge of default risk and pricing — and speed issuance by automating asset screening and checks for compliance with Islamic law, drawn from companies’ financial statements.
Once bonds are issued, she said, AI can track the underlying assets in real time and flag problems early, and in crowdfunding it can automate profit-sharing and detect fraud by analyzing transaction patterns.
But human expertise remains essential: analysts’ skill in directing the AI shapes the quality of its output and guards against fabricated results, and final judgments must stay with people.
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