The majority of sukuk in the international markets are
asset-based, making them dependent on the creditworthiness of the
sponsor, rather than the performance of the assets. The concept of
securitisation of assets— limited in recourse solely by the
performance of the assets underpinning them—has, to date,
only enjoyed limited application in the Islamic finance space.
For asset-backed sukuk to succeed, investors have to go beyond
simply looking at the credit standing of government and
quasi-governmental entities (the sponsors) and start looking at the
actual cash flow and exposure to asset values.
One of the most fundamental factors that could determine the
popularity of asset-backed sukuk in the Middle East is liquidity.
During times of high oil prices, governments have deposited surplus
cash with banks who then lend at very competitive rates in the
market. Since late 2014, however, low oil prices have prompted
governments to withdraw deposits, appearing to lessen
