Sri Lanka to See First Listed Sukuk Issuance by Local Firm

Sri Lanka’s financial world is evolving, promising more inclusive options. Vidullanka Plc, a renewable energy leader on the Colombo Stock Exchange, is set to launch the nation’s First Listed Sukuk. Think of it as an Islamic bond, aligning with Sharia principles. This pioneering move comes as the local bourse actively encourages Islamic finance. It aims to attract diverse investors seeking Sharia-compliant avenues. This First Listed Sukuk could reshape Sri Lanka’s financial future, offering new opportunities. It’s a significant step towards a more diverse financial landscape.

This landmark First Listed Sukuk offering by Vidullanka aims to raise 500 million Sri Lankan rupees, equivalent to approximately $1.7 million based on current exchange rates. However, demonstrating the potential confidence in this novel financial instrument, there is scope to increase the deal size should investor demand prove robust, according to sources familiar with the matter. This flexibility suggests a keen awareness of the market’s appetite for Sharia-compliant investments and a willingness to accommodate strong interest in this First Listed Sukuk.

The planned issuance has already garnered a positive initial assessment from Fitch Ratings, a globally recognized credit rating agency. In March 2025, Fitch assigned an expected local rating of A+ to Vidullanka’s potential Sukuk offering. This strong rating provides a crucial layer of reassurance for prospective investors, indicating a relatively low risk of default and highlighting the financial soundness of Vidullanka as the issuer of this First Listed Sukuk. This positive rating is particularly noteworthy for a debut Islamic financial instrument in a market still in its nascent stages of developing Islamic finance infrastructure.

Related: Amana Bank Sri Lanka Named Best Islamic Bank in South Asia

The Global Rise of Sukuk: An Asset Class Gaining Traction

To understand the significance of Sri Lanka’s First Listed Sukuk, it’s helpful to contextualize it within the broader global landscape of Islamic finance. Sukuk, often referred to as Islamic bonds, are Sharia-compliant financial certificates that represent ownership in an asset or a pool of assets. Unlike conventional interest-bearing bonds, Sukuk structures are designed to avoid the prohibition of riba (interest) by providing investors with a share of the profits generated by the underlying assets.

The global Sukuk market has witnessed substantial growth over the past few decades, becoming a significant component of the international financial system. According to recent data from the Islamic Financial Services Board (IFSB), the total outstanding global Sukuk reached approximately $800 billion by the end of 2024. This figure underscores the increasing acceptance and demand for Islamic financial instruments worldwide, driven by both Muslim and non-Muslim investors seeking ethical and diversified investment opportunities. Key markets for Sukuk issuance include Malaysia, Indonesia, the Gulf Cooperation Council (GCC) countries, and increasingly, other regions looking to tap into Islamic capital.

The appeal of Sukuk lies in their adherence to Sharia principles, which resonate with a large and growing global Muslim population. Furthermore, Sukuk can offer competitive returns and diversification benefits to investors, making it an attractive asset class in a globalized financial market. The issuance of Sri Lanka’s First Listed Sukuk aligns with this global trend, signaling the country’s intention to participate in this dynamic sector.

Sri Lanka’s Foray into Islamic Finance

While Sri Lanka has a sizable Muslim population, its Islamic finance sector has remained relatively underdeveloped compared to some other nations in South and Southeast Asia. The Colombo Stock Exchange’s efforts to kick-start this market are a welcome development, recognizing the potential to unlock new sources of capital and provide Sharia-compliant investment avenues for both domestic and international investors. The listing of Vidullanka’s Sukuk on the local bourse is a crucial first step in this direction, potentially paving the way for more Islamic financial instruments to follow.

The development of an Islamic finance market in Sri Lanka could bring several benefits to the national economy. It can attract investment from Islamic financial institutions and investors globally, diversify the country’s funding sources, and provide Sharia-compliant financing options for businesses looking to expand or undertake new projects. Moreover, it can cater to the financial needs and preferences of Sri Lanka’s Muslim population, fostering greater financial inclusion.

The choice of Vidullanka, a renewable energy producer, as the issuer of the First Listed Sukuk is also noteworthy. Renewable energy is a sector with strong growth potential globally and aligns with environmental, social, and governance (ESG) investing principles, which often resonate with Islamic finance principles that emphasize ethical and sustainable development. This synergy could further enhance the appeal of Vidullanka’s Sukuk to a broad range of investors.

Vidullanka Plc: A Pioneer in Islamic Finance

Established in 1997, Vidullanka Plc has emerged as a leading player in Sri Lanka’s renewable energy sector, focusing on the development, construction, and operation of small hydropower projects. The company has played a significant role in contributing to Sri Lanka’s clean energy goals and has a proven track record of successful project development and management. Its listing on the Colombo Stock Exchange further attests to its financial standing and transparency.

Vidullanka’s decision to issue the nation’s first-listed Sukuk demonstrates its innovative spirit and its commitment to exploring new avenues for financing its growth and future projects. By venturing into the realm of Islamic finance, Vidullanka is not only seeking to raise capital but also positioning itself as a pioneer in the development of this nascent market in Sri Lanka. The proceeds from the Sukuk issuance are expected to be utilized to fund the company’s ongoing and future renewable energy projects, further contributing to Sri Lanka’s sustainable development agenda.

The structure of Vidullanka’s Sukuk is expected to adhere to Sharia principles, likely involving an asset-based or asset-backed structure that provides investors with a beneficial interest in the underlying assets or projects. The specific details of the Sukuk structure will be outlined in the offering documents. The A+ rating from Fitch suggests that the structure and the underlying assets provide a sound basis for investor returns.

Challenges in Sri Lanka’s Islamic Finance Journey

While the issuance of the First Listed Sukuk is a significant step forward, the development of a robust Islamic finance market in Sri Lanka will likely involve navigating certain challenges and capitalizing on emerging opportunities.

One key challenge is the need for a supportive regulatory framework that specifically caters to Islamic financial instruments. This includes clear guidelines on Sukuk issuance, Sharia governance, and the treatment of Islamic financial transactions under Sri Lankan law. The Colombo Stock Exchange’s efforts to kick-start the market likely involve working with regulatory authorities to create a more conducive environment for Islamic finance.

Another important aspect is building awareness and understanding of Islamic finance among both investors and issuers in Sri Lanka. Many potential participants may be unfamiliar with the principles and structures of Islamic financial instruments like Sukuk. Educational initiatives and outreach efforts will be crucial in fostering greater participation in the market.

However, there are also significant opportunities. Sri Lanka’s growing economy and its need for infrastructure development and business expansion provide a strong underlying demand for financing. Islamic finance, with its emphasis on asset-based lending and ethical investment, can be a valuable source of capital for these needs. Furthermore, Sri Lanka’s strategic location and its connections to other markets in Asia and the Middle East could position it as a potential hub for Islamic finance in the region over the long term.

The success of Vidullanka’s First Listed Sukuk could catalyze further development of the Islamic finance market in Sri Lanka. A successful issuance would demonstrate the viability of Sukuk as a fundraising tool and could encourage other companies to explore Sharia-compliant financing options. It could also attract interest from Islamic investors both domestically and internationally, paving the way for a more vibrant and diverse financial ecosystem in Sri Lanka.

Potential Impact on the Sri Lankan Economy

The listing of Vidullanka’s First Listed Sukuk on the Colombo Stock Exchange could offer several benefits to investors:

• Sharia-Compliant Investment Option: It provides Muslim investors in Sri Lanka and potentially overseas with a Sharia-compliant avenue to invest in a local company, aligning their financial decisions with their religious beliefs.
• Diversification: It offers investors an opportunity to diversify their portfolios beyond traditional stocks and conventional bonds.
• Potential for Attractive Returns: The A+ rating suggests a reasonable expectation of returns commensurate with the perceived risk.
• Participation in Renewable Energy Growth: Investors in the Sukuk will indirectly contribute to the growth of Sri Lanka’s renewable energy sector, aligning their investments with sustainable development goals.

For the Sri Lankan economy, the successful issuance of the First Listed Sukuk could:

1. Attract New Capital: It can bring in fresh capital from Islamic investors, both domestic and international, which can be used to fund important projects and stimulate economic growth.
2. Develop the Financial Sector: It contributes to the diversification and sophistication of Sri Lanka’s financial markets.
3. Enhance Financial Inclusion: It provides Sharia-compliant financial options for the country’s Muslim population.
4. Renewable Energy Development: It provides funding for a key sector that contributes to energy security and environmental sustainability.

Building a Sustainable Islamic Finance Market

Vidullanka’s First Listed Sukuk is undoubtedly a significant milestone, but it is just the beginning of Sri Lanka’s journey in developing a robust and sustainable Islamic finance market. Continued efforts will be needed from regulators, the stock exchange, financial institutions, and market participants to build the necessary infrastructure, expertise, and awareness.

This includes:

• Developing a comprehensive legal framework for Islamic finance.
• Promoting education in Islamic finance for professionals.
• Encouraging the development of a wider range of Sharia-compliant financial products.
• Fostering collaboration between local Islamic finance institutions.

Vidullanka’s successful First Listed Sukuk launch marks a turning point for Sri Lanka’s finance, ushering in greater inclusivity. This Sharia-compliant offering demonstrates the viability of Islamic finance in the nation. It’s poised to attract both local and global Islamic investors, injecting new capital. This Sukuk signifies Sri Lanka’s commitment to diversifying its financial landscape. It caters to faith-conscious preferences and draws global attention to its emerging Islamic finance market. Vidullanka’s pioneering step unlocks a future of broader financial opportunities and growth. The journey of Sukuk and Islamic finance in Sri Lanka has just begun, promising a more diverse and robust financial ecosystem.