How Sukuk (Islamic Bonds) Work: An Explainer

Sukuk (the plural of the Arabic “sakk” — “document”, “certificate”) are investment certificates that comply with Islamic law (Shariah). They are often called “Islamic bonds”, but that is not quite accurate: a conventional bondholder lends money to the issuer and receives interest in return, whereas a sukuk holder obtains a certificate of proportional beneficial ownership in a specific real asset or project and receives a share of the income that asset generates (Source: BDCB — Islamic Investment; Wikipedia, “Sukuk”).

Why they differ from ordinary bonds

The core difference lies in the prohibition of riba (interest). Islam forbids taking a predetermined rate on money itself; income must stem from real economic activity, trade, or leasing. So while a conventional bond is a debt obligation, a sukuk is an asset-based security: the investor can share in both the profit and the loss of the project (risk-sharing). In a conventional bond the issuer guarantees payment; in sukuk the return is tied to the actual performance of the asset (Source: Zoya Finance — Understanding Sukuk; World Bank Blogs).

How sukuk are issued

The usual scheme works like this: the entity seeking capital sets up a Special Purpose Vehicle (SPV). The SPV buys or holds an asset (for example a building, road, or equipment), sells sukuk certificates to investors, and passes the raised money to the originator. The lease or trade income from the asset is distributed back to investors as their share. Every sukuk issuance must be approved by a Shariah board, which verifies that the structure complies with Islamic requirements (Source: Baker McKenzie — The Rise of Sukuk; islamicfinance.com).

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Main structures

Sukuk rest on various Islamic contracts. The most common are: Ijara sukuk — based on leasing, where the asset is rented and the rent distributed to investors; Murabaha sukuk — based on cost-plus trade (purchase price plus an agreed profit); Mudaraba and Musharaka sukuk — based on partnership and profit-sharing; Istisna sukuk — for financing construction and manufacturing. The structure chosen depends on the type of project being financed (Source: BDCB; Sukuk.com — Sukuk Structures).

Standards: AAOIFI

The main global rulebook for sukuk structures is Shariah Standard No. 17 of AAOIFI (the Accounting and Auditing Organization for Islamic Financial Institutions), based in Bahrain; it defines 14 distinct types of sukuk. In 2008 AAOIFI issued an important statement noting that many structures in the market had drifted from Shariah requirements. The new Standard No. 62, discussed in 2025, aims to steer sukuk toward genuine asset ownership, real risk-sharing, and greater transparency (Source: HalalWallet — AAOIFI Standard No. 17; FIM Partners — AAOIFI Shariah Standard No. 62).

Global market size

Sukuk is no longer a niche instrument: in 2024 the global sukuk market was valued at roughly USD 1.38 trillion, with annual issuance reaching about USD 180 billion. The biggest players are Malaysia (the leader in sovereign sukuk) and the Gulf states (Saudi Arabia, the UAE, and others). The World Bank also regards sukuk as a growing tool for financing infrastructure projects (Source: IMARC Group — Sukuk Market; World Bank Blogs).

Risks and limits

Sukuk are not risk-free: a fall in the asset's value, a project that fails to generate income, or a structure that in practice resembles debt (a “cosmetically” Shariah-compliant sukuk that economically mimics a conventional bond) are recurring problems. An investor should therefore carefully check which asset the sukuk is based on, who guarantees it, and the ruling of the Shariah board (Source: World Bank Blogs; FIM Partners).

Why it matters for Uzbekistan

Uzbekistan is opening the door to Islamic finance. On 27 March 2026 President Shavkat Mirziyoyev signed the law on Islamic banking; it permits Shariah-compliant models such as murabaha, musharaka, and sukuk, and provides for a five-member Council for Islamic Finance under the Central Bank. In 2025 the Central Bank joined the Islamic Financial Services Board (IFSB), and in 2026 it joined AAOIFI (Source: SpecialEurasia — Uzbekistan Islamic Finance Law; UNDP Uzbekistan).

A dedicated chapter on sukuk is being added to the draft capital-market law — establishing the legal basis for issuing sovereign sukuk, setting compliance requirements with Islamic finance standards, and providing investor-protection mechanisms. Under current plans Uzbekistan's first sukuk is expected to be sovereign and could, among other things, help finance part of the Tashkent–Andijan highway (Source: Trend.az — Uzbekistan plans sovereign sukuk; International Finance — Uzbekistan eyes debut sukuk).