SEC moves to open market for Shari’ah-compliant sukuk issuance

The Securities and Exchange Commission (SEC) is laying the groundwork for sukuk issuances in the Philippines, advancing government efforts to develop the Islamic capital market and widen investment channels for both institutional and retail investors.

The move brings the Philippines closer to integrating with the $2.8-trillion global Islamic finance industry, giving local and foreign investors access to Shari’ah-compliant investment products. It also supports the government’s agenda to promote financial inclusion, especially in regions with significant Muslim populations such as Mindanao.

Why it matters

The move brings the Philippines closer to integrating with the $2.8-trillion global Islamic finance industry, giving local and foreign investors access to Shari’ah-compliant investment products. It also supports the government’s agenda to promote financial inclusion, especially in regions with significant Muslim populations such as Mindanao.

The big picture

On Nov. 26, the SEC released for public comment the proposed guidelines on sukuk issuance and disclosure, a regulatory framework designed to ensure Shari’ah compliance, strengthen investor protection, and align domestic practices with international standards.

The draft introduces enhanced disclosure requirements, clearer Shari’ah governance mechanisms, and stronger investor safeguards—all aimed at establishing sukuk as a credible investment instrument in the local capital market.

Sukuk are certificates of equal value representing undivided interest in underlying assets, usufructs, services, or projects, all structured in accordance with Shari’ah principles.

How it works

Under the draft rules, sukuk intended for public offering must be registered with the SEC and may be listed, traded, and settled through an SEC-registered exchange or other organized market.

The guidelines allow the creation of Special Purpose Entities (SPEs)—separately incorporated from the originator—to issue sukuk and hold underlying assets for sukuk holders. These SPEs must comply with SEC regulations and follow international best practices for Shari’ah-compliant issuance.

Eligible issuers include:

• Publicly listed and non-listed stock corporations
• The national government, its agencies, and instrumentalities
• Local government units
• GOCCs
• Banks supervised by the Bangko Sentral ng Pilipinas, including Islamic banks
• SPEs formed by such entities

The framework seeks to ensure transparency, robust asset backing, and investor protection—three key pillars of global sukuk markets.

Compliance with Shari’ah principles

The draft allows multiple Shari’ah-compliant sukuk structures, including:

• Sukuk Ijarah – lease-based structures with asset sale and leaseback
• Sukuk Murabahah – cost-plus financing for fixed-price sales
• Sukuk Istisna – project-based financing for construction or manufacturing
• Sukuk Wakalah bil Istithmar – investment agency structures
• Sukuk Mudarabah – profit-sharing arrangements
• Sukuk Musharakah – joint venture co-ownership structures

The SEC may approve other structures so long as they adhere to Shari’ah criteria.

Issuers must either form a Shari’ah Committee or appoint a Shari’ah advisor responsible for certifying compliance, reviewing contracts and transaction flows, and overseeing ongoing audits. 

This governance mechanism aims to protect market integrity and build investor confidence—both essential for attracting participants to the Islamic finance space. —Ed: Corrie S. Narisma