- Bridging Global and Local Perspectives in Sukuk Development
Your career uniquely bridges experience across international markets and Bangladesh. How have these dual experiences shaped your understanding of the practical and theoretical challenges involved in developing robust sukuk markets?
Mezbah Uddin Ahmed:
International experience offers valuable insights into how more mature jurisdictions facilitate sukuk through clearer regulatory frameworks, stronger market infrastructure, and well-defined governance arrangements. However, the realities in emerging markets, such as Bangladesh, are materially different. Regulatory regimes are still evolving, technical capacity among stakeholders remains nascent, and supporting market infrastructure is limited.
As a result, sukuk development in such contexts is less about replicating international best practices and more about pragmatically adapting them to local conditions. This involves working with sound principles under tight constraints and a narrow margin for regulatory and institutional manoeuvre. Many theoretical ideals in sukuk structuring encounter practical barriers at the implementation stage, which require careful calibration rather than rigid replication.
- Sukuk Structuring and Innovation
Beyond the well-known ijarah sukuk, what other structures do you see as having untapped potential for funding infrastructure, SMEs, or green projects in markets like Bangladesh? How do you balance innovation with Shariah compliance and investor clarity?
Mezbah Uddin Ahmed:
Structuring sukuk is one of the most exciting areas of Islamic finance. It requires aligning the objectives and constraints of multiple parties while integrating structuring, legal documentation, Shariah compliance, investor protection, and regulatory oversight. Many critical issues only become apparent through hands-on experience and cannot be fully addressed through theory alone.
From a conceptual perspective, asset-backed and participatory structures, such as mudarabah and musharakah-based sukuk, offer significant untapped potential, particularly for income-generating projects. These structures allow returns to be directly linked to the income-generating capacity or performance of underlying assets. However, in practice, implementing such structures has proven highly challenging.
In Bangladesh, while originators may not oppose these structures or the transfer of true ownership of assets to a special purpose vehicle (SPV), fixed-income expectations from both investors and regulators, tax barriers to the transfer of immovable property, and market immaturity have led to the adoption of debt-based structures. Investors exhibit strong reluctance to accept variable or performance-based returns, and regulators prioritise reducing risk to protect investors, leading to a preference for fixed, predictable income streams. These constraints have naturally led to the dominance of ijarah-based sukuk. Nevertheless, efforts have been made, particularly in corporate issuances in compliance with the Bangladesh Securities and Exchange Commission (Investment Sukuk) Rules, 2019, to ensure true ownership of movable assets by the SPV and to select projects for government sukuk with effective internal rates of return (EIRR) exceeding returns distributable to the sukuk holders.
In terms of providing clarity on Shariah compliance, this remains the greatest challenge. We have yet to see the issuance of detailed Shariah resolutions based on the opinions of the Shariah committees. This issue is not only present in sukuk but also in other segments of Islamic finance in Bangladesh. Additionally, while a large portion of the population naturally relies on the views of Shariah experts to determine permissibility, there is a severe shortage of Shariah experts in Bangladesh who truly understand how sukuk operates and possess adequate knowledge of the underlying Shariah principles. This has resulted in widespread confusion in the market and frequent misstatements from various quarters, including individuals in senior positions and those with Islamic finance qualifications from reputable institutions.
This situation hampers long-term strategic efforts for gradual market development and shifts attention towards short-term “firefighting” of emerging issues. There is also a tendency in the market to accept opinions not based on objective assessments but rather on the identity of the person expressing them. More needs to be done by Bangladesh Bank, the Bangladesh Securities and Exchange Commission, and Islamic finance educators to raise awareness and deepen understanding of the intricacies of sukuk.
- The Regulatory and Ecosystem Catalyst
From your experience with both sovereign and corporate sukuk in Bangladesh, what have been the most critical regulatory and policy interventions to catalyse the domestic sukuk market?
Mezbah Uddin Ahmed:
The introduction of legal and regulatory frameworks was foundational. The Bangladesh Securities and Exchange Commission (Investment Sukuk) Rules, 2019, and the Bangladesh Government Investment Sukuk Guideline, 2020, provided essential clarity on the permissibility of sukuk and the governance requirements for issuance. These instruments formally established sukuk as a recognised financial product within the regulatory architecture.
The first sovereign sukuk issuance played a particularly catalytic role. It served as a strong market signal. The overwhelming subscription to government ijarah-based sukuk, despite offering returns lower than those of comparable treasury instruments, demonstrated strong demand for sukuk. This issuance also helped address liquidity management challenges faced by Islamic banks.
- Anchor Issuers and Market Confidence
What role do anchor entities—such as governments and central banks—play in shaping confidence and stimulating broader sukuk market development?
Mezbah Uddin Ahmed:
Anchor issuers play a critical role, particularly in new markets. In Bangladesh, the government’s sukuk issuance marked a turning point not only for the sukuk market but also for the broader capacity-building of Islamic finance. Following the issuance, there was a noticeable increase in Islamic finance course offerings by various entities and a sharp rise in enrolment, reinforcing the growing interest and confidence in Islamic finance.
- Standardisation vs. Localisation
Where is greater global standardisation in sukuk practices most needed, and where should local markets retain flexibility?
Mezbah Uddin Ahmed:
Compliance with AAOIFI Shariah Standards enhances the credibility of sukuk and strengthens market confidence. However, full compliance may encounter practical challenges in markets that are not yet AAOIFI-ready. Legal, tax, and ecosystem constraints—particularly regarding the transfer of ownership of government or immovable private assets—can hinder full compliance.
Additionally, limitations in the Islamic insurance sector, reliance on conventional insurance for existing assets, and the lack of suitable third-party guarantors willing to provide guarantees without a fee are some practical constraints faced by emerging markets. In such contexts, limited and well-justified exceptions may be necessary. These should be accompanied by clear disclosures, transparent Shariah reasoning, and a structured roadmap to gradually overcome the underlying barriers to compliance.
- Key Challenges in Secondary Market Development
What are the most significant hurdles to developing vibrant secondary sukuk markets?
Mezbah Uddin Ahmed:
A major challenge is the absence of dedicated and suitable trading platforms for sukuk, which depend on debt securities trading infrastructure. Pricing is another critical issue, particularly for asset-backed sukuk, as markets treat all sukuk as equivalent to conventional bonds, disregarding the ownership and condition of the underlying assets. Information asymmetry, resulting from a lack of sufficient disclosures and media briefings, further compounds this problem.
Where AAOIFI rules on tradability are applied, maintaining and monitoring the tangibility ratio of the underlying assets becomes essential. In the absence of proper mechanisms and adequate market awareness, effectively tracking and communicating this information remains a significant challenge.
- Human Capital and Education
As a trainer in sukuk workshops, what knowledge gaps do you most frequently observe among professionals? How crucial is education to market growth?
Mezbah Uddin Ahmed:
One of the most persistent challenges is the misconception that sukuk are simply Islamic versions of bonds. Professionals often underestimate the importance of analysing underlying assets, contractual structures, and risk allocation. There is also limited understanding of the distinct roles of issuers, originators, SPVs, trustees, Shariah committees, and regulators within a sukuk transaction.
My core training focus is therefore on structural and governance clarity—helping participants understand how sukuk actually work in practice, the Shariah rationale behind each structure, and the regulatory implications at each stage of the lifecycle. Building this human capital is fundamental. Without technically competent bankers, lawyers, regulators, and Shariah experts, sukuk markets cannot grow in a sustainable or credible manner.
- Advice for Stakeholders
What actionable advice would you give to key sukuk stakeholders?
Mezbah Uddin Ahmed:
- For aspiring issuers: Issuers need to clearly understand the purpose of issuing sukuk, ensure asset suitability at an early stage, and engage Shariah advisors from the outset. Rather than viewing sukuk merely as an alternative to conventional bonds, it is important to appreciate its distinct structure and objectives. For pioneering issuers, patience and ongoing engagement are essential, as misunderstandings and misstatements are natural in the early stages of market development. Efforts to educate all parties involved about the chosen structure and its Shariah and regulatory rationale are necessary to bring others on board and build confidence in the market. Enhanced disclosure and strengthened investor education will also be essential in bridging existing gaps and supporting informed investment decisions.
- For regulators: A facilitative yet principled approach is important. While investor protection remains essential, an overly risk-averse stance may limit innovation and market development. Establishing clear rules, ensuring regulatory coordination and consistency, promoting a transparent approval process, and providing appropriate incentives for participatory structures can meaningfully enhance market depth and resilience.
- For traditional investors: Sukuk should not be assessed solely through the lens of conventional bonds. Investors are encouraged to develop a sound understanding of asset ownership, the associated risk factors, and the relevant Shariah considerations. They should also actively seek the information necessary for informed decision-making, thereby encouraging issuers and regulators to respond more effectively to their information needs.
- Final Vision
Looking ahead 5–10 years, what is your vision for the sukuk market in Bangladesh and the region?
Mezbah Uddin Ahmed:
As many Muslim countries face rising debt burdens, sukuk has the potential to evolve beyond the current predominance of debt-based structures toward a more diversified instrument that fully utilises its inherent potential. In this regard, AAOIFI’s proposed Shariah Standard No. 62—although currently on hold—represents an important conceptual step forward. Achieving this transition requires strong regulatory support. While investor protection remains crucial, it should not be pursued solely within a debt-based framework. Regulators and rating agencies should recognise sukuk as an independent asset class rather than treating it as a debt instrument. Such a shift would enable sukuk to play a more meaningful role as an effective tool for sustainable economic development.