Update on Sukuk in the Saudi Financial Market: Regulations and Growth

Sukuk are Islamic financial instruments that represent ownership in an asset, project, or investment contract, issued in accordance with Sharia law. This concept fundamentally differs from traditional bonds, which represent a debt with fixed interest on the issuer. In sukuk, the investor receives periodic returns derived from the profits of the project or asset financed by the sukuk, rather than from usurious interest. This compliance with Sharia law makes sukuk a distinctive option for investors seeking financial instruments that avoid usury and financial penalties. In the Saudi market, sukuk reflect the national trend towards diversifying funding sources and supporting developmental projects through tools that align with community values and Sharia regulations.

Since the launch of the sukuk and bond market on Tadawul in 2017, the Saudi financial market has witnessed significant growth in the volume of issuances and the diversity of sukuk issuers. During 2024 and 2025, there has been a strong focus on updating sukuk through regulatory reforms and procedural facilitation. The Capital Market Authority announced a reduction in the requirements for the prospectus by more than 50%, and eliminated the need for prior notification for private placements, which accelerated issuance processes and reduced costs for companies. These updates have enhanced the market's attractiveness to both local and international investors, providing both the public and private sectors with an effective platform to finance major projects such as infrastructure, energy, and industry. These reforms are part of a broader strategy to achieve the goals of Saudi Vision 2030, which focuses on diversifying the economy and increasing the financial sector's contribution.

By the end of 2023, the value of listed sukuk and bonds in Saudi Arabia reached approximately 700 billion Saudi Riyals, according to official reports from the Tadawul platform and the Capital Market Authority. The value of new issuances increased by more than 3% by the end of the third quarter of 2023, with expectations of continued growth in 2024 and 2025, supported by the interest of companies, sovereign funds, banks, and government institutions in this financing source. Major companies such as Saudi Electricity and the Industrial Development Fund launched massive issuances ranging in billions of Riyals, contributing to increasing market depth and expanding the investor base. This momentum reflects the central role of sukuk in financing national development projects and meeting the growing financing needs of both the public and private sectors.

In November 2025, the Saudi Capital Market Authority announced the largest package of regulatory updates in the history of the sukuk and bond market, which included halving the requirements for the prospectus, eliminating the need for prior notification for private placements, and allowing government funds and development banks to issue debt instruments independently. These reforms aim to increase market flexibility, accelerate the pace of issuances, and attract a broader segment of investors and issuers. The amendments have also reduced administrative and legal costs for companies, encouraging more entities to take advantage of the sukuk market. Through these updates, the Authority aims to make the sukuk market one of the cornerstones of financing the national economy and attracting both foreign and local investments.

The issuance of sukuk goes through several key steps, starting with the issuer determining its financing needs, followed by preparing the prospectus in collaboration with licensed financial and legal advisors. After approval from the Capital Market Authority, sukuk are offered in the sukuk and bond market through the Tadawul platform. Individual and institutional investors can purchase sukuk through licensed brokers, and they are traded in the secondary market similarly to stocks. The Tadawul platform provides comprehensive information about traded sukuk, including their value, maturities, issuers, and periodic returns. Trading operations are characterized by transparency, with real-time updates on prices and trading volumes, facilitating investors in monitoring their investments and making informed decisions.

The return on sukuk is the periodic share of the investor from the profits of the financed asset or project, rather than a fixed interest as in bonds. The rates of return on local sukuk range between 3% and 5% annually, depending on the issuer, the quality of the underlying assets, the duration of the sukuk, and the credit rating. Government sukuk often yield lower returns and are safer, while corporate sukuk may achieve higher returns in exchange for relatively greater risks. Other influencing factors include economic conditions, global interest rates, and the state of the local market in terms of liquidity and demand. Investors should carefully review the prospectus to understand the profit distribution mechanism and the schedule for disbursement.

Sukuk have several advantages that make them attractive to a wide range of investors, especially in Saudi Arabia. First, full compliance with Sharia law, as sukuk are based on legitimate contracts such as leasing or partnership, without paying or receiving usurious interest. Second, sukuk provide a nearly fixed periodic return, achieving stability for investment portfolios. Third, most government sukuk or those linked to major projects have a high degree of security, due to the presence of real assets backing them. Sukuk also allow investors to diversify their portfolios away from stocks or traditional banking instruments and contribute to financing major developmental projects that support the national economy.

Despite their advantages, sukuk carry some risks that investors should be aware of. The most prominent of these risks include credit risk (in case the issuer defaults or the expected profitability of the financed asset declines), liquidity risk (difficulty in selling sukuk quickly or in large quantities in the secondary market), market risk (the impact of changes in interest rates or economic conditions on sukuk prices), and issuance structure risk (maturity conditions or distributions). Additionally, some sukuk are not government-backed, and their safety depends on the quality of the assets or projects financed. It is always advisable to read the prospectus carefully and ensure understanding of the credit rating and market risks, consulting a licensed financial advisor.

The Saudi Capital Market Authority plays a central role in regulating and supervising the sukuk and bond market, setting the rules governing issuance and trading, and working to develop the legislative and regulatory environment to ensure transparency and protect investors. The Authority continuously monitors market updates and issues amendments aimed at simplifying procedures and making the market more attractive and efficient. For its part, the Saudi Stock Exchange (Tadawul) provides a comprehensive electronic platform for trading sukuk, displaying financial data, periodic reports, and details of listed sukuk, enabling investors to monitor the market efficiently and transparently.

Key sukuk issuers in Saudi Arabia include the government (through the Ministry of Finance and sovereign funds), government banks, major companies in the energy, transport, and infrastructure sectors, and private sector companies seeking Sharia-compliant expansion financing. The proceeds from sukuk are typically used to finance large projects such as building power plants, expanding transport networks, developing infrastructure, or supporting industrial transformation programs. In recent years, telecommunications and technology companies have also turned to issuing sukuk to finance expansion in digital infrastructure. This diversity in issuers reflects the importance of sukuk as a key financing tool for the Saudi economy.

Sukuk compete with traditional bonds and bank loans as primary financing tools for the public and private sectors. Bonds rely on paying fixed interest, while sukuk distribute profits derived from real assets or projects. Bank loans provide direct financing that is often short-term. Issuers choose between these instruments based on their financing strategy, degree of Sharia compliance, issuance costs, and market conditions. In Saudi Arabia, the attractiveness of sukuk is increasing due to strong demand from investors seeking Sharia compliance, alongside regulatory reforms that have made the issuance and trading process easier and more flexible.

In 2025, the Tadawul market announced major technological updates to the sukuk and bond trading platform, including improved transparency, facilitation of electronic trading procedures, and linking the market to global platforms. The Capital Market Authority also launched awareness campaigns to enhance individual investors' understanding of sukuk, their advantages, and risks compared to other investment instruments. These initiatives aim to expand the investor base, increase market depth, and support a more efficient and competitive investment environment. The Authority and Tadawul continue to provide periodic reports and detailed data to enhance transparency and improve the investor experience.

Through Saudi Vision 2030, the Kingdom aims to deepen financial markets and diversify funding sources, with sukuk playing a pivotal role in achieving these goals. As regulatory updates continue and the volume of issuances grows, sukuk are expected to become increasingly important as a financing tool for national strategic projects, such as infrastructure, renewable energy, and digital technologies. The growing demand from local and international investors enhances Saudi Arabia's position as a regional hub for Islamic sukuk. Challenges remain in areas of liquidity and diversification, but ongoing reforms strengthen the market's flexibility and ability to adapt to future requirements.