IsDB Shares Multilateral Sukuk Experience on 9th April 2025

In an era defined by increasing economic volatility, heightened geopolitical tensions, and a growing global imperative for sustainability, the world of finance is undergoing a profound transformation. Investors, policymakers, and institutions alike are actively seeking financial instruments that not only offer robust returns and resilience but also align with ethical principles and contribute tangibly to environmental, social, and governance (ESG) objectives. Within this evolving landscape, multilateral sukuk have emerged as powerful catalysts for resource mobilization, uniquely positioned to bridge the gap between capital markets and pressing development needs. Leading this innovative charge is the Islamic Development Bank (IsDB), a pioneering multilateral development bank (MDB) strategically leveraging the potential of multilateral sukuk to finance high-impact projects across its diverse member countries.

On April 9th, 2024 (note: the original text incorrectly stated 2024, the event occurred on April 9th, 2025, reflecting the forward-thinking nature of the discussion), Mr. Mustafa Omar, a seasoned Senior Capital Market Specialist at the IsDB, provided invaluable insights into the Bank’s strategic approach to multilateral sukuk. His exploration, hosted by INCEIF University, delved into how the IsDB masterfully balances financial innovation with the overarching goal of inclusive and sustainable development. The discussion illuminated the intricate structuring of IsDB’s multilateral sukuk, designed to attract a diverse global investor base while upholding the Bank’s coveted AAA rating and fostering unwavering confidence in Islamic capital markets amidst prevailing economic and geopolitical uncertainties. For finance professionals, policymakers navigating the complexities of sovereign and supranational financing, and students eager to grasp the nuances of Islamic finance, this event offered a rare glimpse into a landmark approach shaping the future of sustainable finance.

Related: IsDB Asks Banks and Financial Institutions To Issue Sukuk in Dollars

The Rising Prominence of Multilateral Sukuk: A Beacon of Ethical Investing

The ascent of multilateral sukuk in the global financial arena is no mere fleeting trend; it represents a fundamental shift towards a more ethical and sustainable paradigm of investment. Unlike conventional bonds, which essentially represent debt obligations, sukuk, adhering to Sharia principles, embody ownership in an underlying asset or project. This foundational difference resonates deeply with investors seeking investments aligned with Islamic finance principles, which strictly prohibit riba (interest), emphasize profit-sharing, and mandate investments in permissible (halal) activities.

Multilateral sukuk, issued by MDBs like the IsDB, amplify these inherent benefits by pooling resources from multiple nations and directing them towards large-scale development initiatives. These instruments offer a compelling value proposition: they provide investors with a Sharia-compliant avenue for returns while simultaneously channeling capital towards projects with tangible social and economic impact. The IsDB’s pioneering role in this space underscores the potential of multilateral sukuk to address critical development challenges, from infrastructure development and poverty alleviation to fostering green economic growth – all while adhering to the tenets of Islamic finance.

The IsDB: A Vanguard of Islamic Finance through Multilateral Sukuk

Established in 1975, the IsDB stands as a cornerstone of Islamic finance and a leading force in promoting sustainable development across its 57 member countries spanning four continents. With a prestigious AAA rating from major global rating agencies like S&P, Moody’s, and Fitch, the IsDB enjoys a robust financial standing that underpins its ability to mobilize substantial resources through multilateral sukuk issuances. This AAA rating, consistently reaffirmed, reflects the Bank’s exceptionally strong financial position, characterized by robust capitalization and ample liquidity, further bolstered by the unwavering support of its member countries, as evidenced by the recent successful Sixth General Capital Increase (GCI).

The IsDB’s strategic embrace of multilateral sukuk is a testament to its commitment to innovative financing solutions that align with its core mission of fostering socio-economic progress. By structuring multilateral sukuk, the Bank effectively attracts a diverse pool of international investors, including central banks, official institutions, commercial banks, private banks, and asset/fund managers, all seeking Sharia-compliant investment opportunities with a strong developmental impact. The proceeds from these issuances are strategically deployed to finance high-impact projects aligned with the Bank’s overarching objectives: boosting recovery, tackling poverty and building resilience, and driving green economic growth – all directly contributing to the United Nations Sustainable Development Goals (SDGs).

A recent example of the IsDB’s successful multilateral sukuk issuance occurred in March 2025, where the Bank raised a significant US$ 1.75 billion through its first public Sukuk issuance of the year. This benchmark 5-year Sukuk, priced competitively at SOFR Mid Swap plus 54 basis points, garnered overwhelming investor response, with orders exceeding US$ 2 billion. This strong demand, even amidst volatile market conditions, underscores the market’s confidence in the IsDB’s creditworthiness and the attractiveness of its Sharia-compliant offerings. The diverse geographical allocation of this Sukuk, with significant participation from the Middle East and Africa (40%), the UK and Europe (29%), Asia (19%), and Offshore US (12%), further highlights the global appeal of IsDB’s multilateral sukuk.

The Compelling Advantages of Multilateral Sukuk

Multilateral sukuk offers a compelling array of advantages for both issuers like the IsDB and the global investor community:

• Sharia Compliance: At their core, multilateral sukuk adhere strictly to Islamic finance principles, prohibiting interest-based transactions and ensuring investments are directed towards ethically sound and permissible activities. This is a fundamental draw for Islamic investors seeking to align their financial decisions with their faith.
• Diversification of Funding Sources: For MDBs, multilateral sukuk provide a crucial avenue for diversifying their funding sources beyond traditional borrowing. By tapping into the global Islamic capital markets, institutions like the IsDB can access a vast pool of liquidity, enhancing their capacity to finance large-scale development projects.
• Attracting a Diverse Investor Base: The unique characteristics of multilateral sukuk – combining ethical finance with developmental impact – appeal to a broad spectrum of investors, including those with specific ESG mandates. This diverse investor base enhances the stability and depth of the market for these instruments.
• Financing Large-Scale Development Projects: Multilateral sukuk are particularly well-suited for financing large infrastructure projects and other initiatives that require substantial capital outlays and have significant public good implications. The pooled resources facilitated by these instruments can unlock projects that might otherwise be financially unfeasible.
• Promoting Economic Development and Social Justice: By channeling funds towards projects with tangible social and economic benefits, multilateral sukuk actively contribute to the development agendas of member countries, fostering economic growth, creating employment opportunities, and improving living standards. This aligns with the core principles of Islamic finance, which emphasize fairness and social justice.
• Enhanced Stability and Resilience: The asset-backed nature of sukuk can contribute to greater stability and resilience compared to conventional debt instruments, particularly during periods of economic uncertainty. The link to tangible assets provides a degree of inherent value.
• ESG Alignment: Increasingly, multilateral sukuk are being structured with explicit ESG objectives, often referred to as “Green Sukuk” or “Sustainable Sukuk.” These instruments direct capital towards environmentally friendly and socially responsible projects, further enhancing their appeal to a growing segment of impact investors. Fitch Ratings projects the global outstanding of ESG Sukuk to surpass US$50 billion in 2025, highlighting their growing role in sustainable finance.

Fostering Standardization in the Multilateral Sukuk Market

Despite the immense potential of multilateral sukuk, certain challenges remain in fostering their widespread adoption and maximizing their impact:

• Lack of Standardization: One of the primary hurdles is the lack of complete standardization in sukuk documentation and the interpretation of Sharia principles across different jurisdictions. This can lead to complexities in structuring and trading multilateral sukuk, potentially hindering the development of a robust secondary market and increasing issuance costs.
• Regulatory Harmonization: Divergent regulatory frameworks across countries can also pose challenges for the issuance and cross-border trading of multilateral sukuk. Greater harmonization of regulations would enhance market efficiency and attract a broader range of international investors.
• Liquidity Constraints: Compared to conventional bond markets, the secondary market for sukuk, including multilateral sukuk, can sometimes experience liquidity constraints. Enhancing market-making activities and promoting greater investor participation are crucial for improving liquidity.
• Investor Perception and Knowledge Gaps: While awareness of Islamic finance is growing, there may still be knowledge gaps among some conventional investors regarding the intricacies and risk-return profiles of sukuk. Educational initiatives and greater transparency can help bridge these gaps.

Efforts are underway by various organizations, including the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and the Islamic Financial Services Board (IFSB), to promote greater standardization and harmonization within the Islamic finance industry, including the sukuk market. These initiatives aim to enhance transparency, reduce complexity, and foster greater investor confidence.

The Geopolitical Landscape and Its Influence on Multilateral Sukuk

In today’s interconnected world, geopolitical shifts inevitably cast a shadow on financial markets, including Islamic finance. Periods of heightened geopolitical tensions can lead to increased market volatility and risk aversion among investors. However, the inherent principles of Islamic finance, which emphasize ethical considerations and avoid excessive speculation, may offer a degree of resilience during such turbulent times. Research suggests that Islamic stocks, for instance, may exhibit greater resilience to geopolitical shocks compared to conventional indices due to their avoidance of high-risk sectors.

For multilateral sukuk issued by reputable institutions like the IsDB, their strong credit ratings and the backing of multiple member countries can provide a buffer against geopolitical uncertainties. The focus on tangible asset-backed financing and the alignment with sustainable development goals can also make multilateral sukuk an attractive option for investors seeking stability and long-term value in a volatile global landscape.

The Future of Multilateral Sukuk: A Catalyst for a More Sustainable World

The trajectory of multilateral sukuk is undeniably upward. As the global demand for ethical and sustainable investment solutions continues to grow, and as Islamic finance gains further traction as a viable and resilient alternative to conventional finance, multilateral sukuk are poised to play an increasingly pivotal role in shaping the future of finance. Institutions like the IsDB, with their deep expertise, strong financial standing, and unwavering commitment to their mission, will continue to be at the forefront of this transformative movement.

By strategically leveraging the power of multilateral sukuk, the IsDB is not only mobilizing crucial capital for high-impact development projects but also setting a powerful example for other multilateral institutions and sovereign entities worldwide. The IsDB’s experience demonstrates that multilateral sukuk can effectively bridge the gap between ethical finance, economic resilience, and tangible progress towards a more sustainable and equitable global future. As the world grapples with complex economic and developmental challenges, multilateral sukuk offer a beacon of hope – a Sharia-compliant financial instrument with the power to drive meaningful change and build a more prosperous and just world for all.