Outstanding Islamic Debt Securities Approching Conventional Debt

Malaysia is a world leader and standard-setter in Islamic finance. In recent years, the government increased the use of Islamic debt instruments for funding purposes. In April 2016, the government issued its fifth dollar-denominated sovereign sukuk (Malaysia 2026, and Malaysia 2046) for US$1.5 billion using nonphysical assets as collateral.

The total outstanding stock of government Islamic securities is approaching that of Malaysian government securities. The main reasons behind increasing issuance of sukuk in recent years have been healthy demand and a desire to develop the market. The inclusion of Islamic debt securities in some global bond indexes provided a boost. The primary auctions for sukuk in Malaysia have consistently generated higher cover ratios than for equivalent conventional instruments, and the spreads between conventional bonds and sukuk have declined steadily over time.

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IMF Report on Malaysia – April 2017 (5.58mb)