Sukuk is a certificate of investment in Islamic finance. It follows the fundamental principles of Islamic finance, namely: (1) prohibition of interest; (2) prohibition of uncertainty; (3) use of underlying assets; (4) risk sharing; and (5) no investment in forbidden activities. Sukuk is increasingly used in several countries where it serves as a useful Islamic investment tool and provides funding for valuable businesses and projects.

A vast majority of scholars support sukuks. They rely upon the key features of sukuk transaction, such as underlying assets, risk-sharing and performance-based returns, to conclude that sukuks are compliant with Islamic principles.

Those who oppose sukuks argue that they are often structured as conventional bonds by adopting interest-based arrangements. The opponents contend that sukuk issuers guarantee a fixed return without considering the actual performance of underling assets (or services) which violates the Islamic principle of risk-sharing. Another challenge is that the underlying assets are fictionally used and the sukuk issue is not truly backed by assets.

The debate over compliance of sukuks with Islamic principles continues both at scholarly levels and among investors. It rather reflects the need for adoption of harmonised standards for the issuance of sukuks. Valuable guidance on this subject already exists in the form of work done by international Islamic organisations. To make full use of such work, regulatory authorities monitoring the issue of securities in their respective jurisdictions can play a vital role by prescribing the standard conditions for the issue of sukuks and issuing the toolkits for structuring sukuk transactions. These objective measures will help the sukuk parties to structure fully compliant transactions and the Islamic scholars involved in the review and validation of sukuk transactions to more effectively ensure their compliance with Islamic principles.