A sukuk is a certificate representing an undivided share in the ownership of a tangible asset, a usufruct or a service, and not a claim on the issuer. Its holder is paid out of the income from that asset — rent, a share of profit — and not by interest. That is the definition in AAOIFI Standard No. 17, adopted in 2003. Sukuk are often called “Islamic bonds”, but the shorthand is misleading: a sukuk is compliant only if its structure genuinely is, which has not always been the case. From Switzerland, direct access is difficult for a private investor; it usually goes through a fund.
In a compliant portfolio, the place of bonds is empty. A bond pays for a loan with interest: that is riba in its purest form, and it is why a Muslim investor's defensive allocation is often reduced to gold and cash. Sukuk are the answer Islamic finance has built to fill that gap. The global sukuk market now exceeds a trillion dollars outstanding; yet it remains almost unknown to investors in French-speaking Switzerland.
This guide explains what a sukuk is, what distinguishes it from a bond, the most common structures, and the abuses that led scholars themselves to sound the alarm. It ends with the practical question: how can a private investor in Switzerland gain access to them, and with what precautions?
What is a sukuk?
A sukuk (plural of sakk, “certificate” or “deed”) is a security of equal value representing an undivided share in the ownership of tangible assets, usufructs or services, or of a specific project or investment activity. That is the definition given in Sharia Standard No. 17 of AAOIFI, the standard-setting body for Islamic finance, adopted on 8 May 2003.
The word that counts is ownership. The holder of a sukuk has not lent money to the issuer: together with other holders, they have acquired a share in an asset or an activity. They receive its income and bear its risks, in proportion to their share. That is what allows the holder to be paid without interest: they are paid because they co-own something that produces income, not because they advanced money.
Issuance generally follows the same pattern. The issuer — a state, a bank, a company — sets up a special-purpose vehicle, which buys or leases an asset and finances it by selling sukuk to investors. Over the life of the security, the income from the asset flows back to the holders; at maturity, the asset is sold and the proceeds go to them.
How does a sukuk differ from a bond?
A bond is a claim: its holder has lent money and receives interest fixed in advance, whatever use is made of the sum. A sukuk is a share of ownership: its holder receives the income from the underlying asset and bears its risk. The two securities can look alike on a bank statement — a face value, a maturity, periodic payments — but they do not rest on the same contract.
| Criterion | Conventional bond · Sukuk |
|---|---|
| What the holder owns | Bond: a claim on the issuer. Sukuk: an undivided share in an asset, a usufruct or a service. |
| Source of the return | Bond: interest, the price of time. Sukuk: the income from the asset — rent, a trading margin, a share of profit. |
| Underlying asset | Bond: none is needed. Sukuk: compulsory, identified and permissible. |
| Capital guarantee | Bond: repayment of face value promised by the issuer. Sukuk: under Standard No. 17, the issuer may not guarantee the face value or a fixed profit; an independent third party may do so free of charge. |
| Use of funds | Bond: unrestricted. Sukuk: the activity financed must itself be compliant. |
| Trading on the market | Bond: always possible. Sukuk: only when the security represents real assets; a sukuk that represents nothing more than a debt cannot be traded. |
The last point is often overlooked. Standard No. 17 prohibits securitising debts in order to trade them (clause 5/1/2), because selling a claim at a price other than its value would amount to riba. A murabaha sukuk, for example, can no longer be traded once the goods have been delivered to the buyer: at that point it represents nothing but a claim (clause 5/2/15). Salam sukuk cannot be traded before delivery either (clause 5/2/14).
What are the main types of sukuk?
Standard No. 17 lists around fifteen, which come down to a few families. Each rests on a contract of Islamic finance, and it is that contract which determines where the income comes from and what the holder is exposed to.
- Ijara sukuk — the holders own a leased asset (a building, equipment) and receive the rent. This is the most widespread structure, particularly for sovereign issues.
- Musharaka or mudaraba sukuk — the holders are partners in an activity and share its profit according to a ratio fixed in advance, and its loss according to their contribution.
- Investment agency sukuk (wakala) — an agent manages a pool of compliant assets on behalf of the holders, for a fixed fee.
- Murabaha sukuk — the funds are used to buy goods that are resold at a margin. Tradable only before the resale.
- Salam and istisna sukuk — financing goods to be delivered later, or an asset to be manufactured, such as infrastructure.
So-called hybrid structures mix these contracts, for example leased assets and murabaha receivables in the same pool. They are tradable only if the share of real assets remains sufficient, a threshold that sharia boards assess issue by issue.
Are all sukuk compliant?
No, and it was the scholars themselves who said so. In November 2007, Mufti Taqi Usmani, then chairman of the AAOIFI Sharia Board, published a critique estimating that around 85% of the sukuk issued at the time did not fully comply with sharia. In February 2008, the AAOIFI Sharia Board issued a statement that took up this finding and restated the rules.
The main criticism concerned one specific clause: the issuer's undertaking to buy back the sukuk at face value at maturity. With such a promise, the holder no longer bears the risk of the asset: they get their capital back whatever happens, plus an income pegged to a market rate. Economically, they have lent money. Standard No. 17 prohibits the issuer from undertaking to buy back the sukuk at face value; it may only undertake to buy them back at market value (clause 5/2/2). Ijara and co-ownership sukuk are subject to a carefully framed exception, because the party buying back acquires a real asset that it uses.
The Dana Gas case showed that the question was not theoretical. In June 2017, the Emirati company declared that two of its sukuk, totalling 700 million dollars, were no longer compliant in light of evolving interpretations, and refused to repay them on the agreed terms. The dispute went before the courts in London and Sharjah. For an investor, the lesson is twofold: the “sukuk” label guarantees nothing, and the compliance of an issue is read in its structure, not in its name.
A sukuk is checked like a share: you do not stop at the product's name. Three questions decide: what real asset is held, where does the income come from, and does the issuer promise to return the face value whatever happens?
What are the risks for the investor?
A sukuk is not a risk-free investment. It carries the risks of an income-producing security, plus a few risks specific to its structure. Knowing them before you buy keeps you from mistaking a sukuk for a guaranteed deposit.
- Issuer risk. In most issues, the holder has no direct recourse to the asset if things go wrong: they depend on the issuer's soundness, as with a bond. Several defaults occurred between 2008 and 2010, including that of Investment Dar in Kuwait in May 2009, on 100 million dollars.
- Market risk. A sukuk bears no interest, but its price reacts to market rates: when they rise, the value of an existing sukuk falls.
- Currency risk. Most of the market is denominated in US dollars, ringgit or Gulf currencies. For an investor in francs, the movement in the currency can exceed the security's income.
- Legal and compliance risk. An issue can be challenged after the event, as the Dana Gas case showed, and the governing law is often English law or that of the issuing country.
- Liquidity risk. Many sukuk are bought by Islamic banks and held to maturity. The secondary market is thin.
Can you buy sukuk from Switzerland?
Yes, but rarely directly as a private investor. The Swiss Confederation has never issued sukuk, and the market lies in Kuala Lumpur, the Gulf, London or Luxembourg. Most issues are reserved for institutional investors, with high denominations — frequently 200'000 dollars per security — which puts them out of reach of a portfolio of ordinary size.
A few European sovereign issuers have led the way. The United Kingdom issued a 200 million pound ijara sukuk in June 2014, backed by three central government buildings, the first sovereign sukuk from a non-Muslim country, with orders 11.5 times the amount on offer; a second followed in 2021. These securities nonetheless remain hard to reach through a retail bank.
The most realistic route is therefore a sukuk fund. Several managers offer investment funds invested in sukuk, overseen by a sharia board. Before buying one, two checks are essential:
- is the fund authorised for distribution in Switzerland? FINMA publishes the list of foreign collective investment schemes approved for offer to non-qualified investors, which can be consulted in its search for authorised institutions and products;
- what does it actually hold? The fund's annual report details the issues held, their structure and any share of cash. The same reasoning as for halal ETFs applies: you do not look at the wrapper, you look at what it holds.
On the tax side, income paid by a sukuk or a sukuk fund is in principle treated as income from movable assets (Art. 20 of the Federal Act on Direct Federal Tax (DBG/LIFD)), and the value of the securities at 31 December forms part of taxable wealth. The exact classification of a particular structure may vary: in case of doubt, the cantonal tax administration decides.
What place for sukuk in a compliant portfolio?
In principle, sukuk play the role that bonds play in a conventional portfolio: a more stable allocation that pays a regular income and cushions movements in equities. For a Muslim investor, it is the only instrument that fills that gap without resorting to interest.
In practice, their place depends on three things: whether you can access them through an authorised, transparent fund, the cost of hedging or accepting the currency risk, and confidence in the structure of the issues held. For many modest Swiss portfolios, gold held in full ownership and an interest-free cash reserve fulfil that function more simply. Sukuk become worthwhile as wealth grows and the defensive allocation deserves to be diversified.
One last point concerns zakat. A sukuk represents a share in an asset, not a claim: its treatment in the zakatable base follows the logic of securities held, which we set out in our guide to zakat on investments.
The most common mistakes
The mistakes almost always come from the trust placed in the word “sukuk” rather than in the security itself.
Treating a sukuk as a guaranteed deposit
A compliant sukuk does not guarantee the capital: that is precisely what distinguishes it from a bond. The holder shares the risk of the asset and depends on the soundness of the issuer.
Stopping at the product's name
An issue can carry the name sukuk and include an undertaking to buy back at face value that brings it close to a loan. The structure is read in the prospectus, not in the title.
Forgetting the currency
An income of a few per cent in dollars can be wiped out by a fall in the dollar against the franc. The currency risk is decided before you buy.
Buying a fund without reading what it holds
A sukuk fund can hold a large share of cash or short-term investments. Their compliance is checked too, in the annual report.
Neglecting the distribution authorisation
A foreign fund not authorised for distribution in Switzerland does not offer a private investor the same safeguards on information. The FINMA list can be checked in a few seconds.
Sukuk are one of the most accomplished constructions of Islamic finance, and also one of those that demand the most vigilance. Properly understood, they complete a compliant portfolio exactly where it most often lacks something. To revisit the principles they derive from, our guide to Islamic finance goes back to the foundations, and our article on investing without riba explains why conventional bonds are excluded from it.
Building the defensive part of your wealth
Gold, cash, sukuk: a halal investment expert looks with you at what makes sense at your scale, within the Swiss framework, and leaves you to decide with full knowledge of the facts.
Speak to an expertThis content is provided for educational purposes by ALG Club. It constitutes neither a fatwa, nor a recommendation to buy a security or a fund, nor a financial service within the meaning of the Financial Services Act (LSFin). As questions of compliance involve differences between schools of jurisprudence, it is for each person to refer to a qualified religious authority for their own situation.