Sukuk: Risks and Common Mistakes

Sukuk are certificates structured to represent interests or rights in assets, projects, services or investment activities under an applicable Shariah-compliant arrangement. Their contractual structure and risks differ by transaction.

Focus of this article: Explain counterparty, documentation, execution, liquidity and compliance risks and how to reduce them.

Understanding Sukuk

Before choosing a structure, define the underlying commercial purpose, the parties involved, the expected cash flows and the transaction timeline. Compare the proposed solution against alternative financing or risk-management approaches. The suitability of any instrument depends on its contractual terms and the circumstances of the parties.

Risks and Common Mistakes: practical considerations

Start with the commercial objective and map the obligations of the applicant, beneficiary, borrower, issuer, lender or investor as applicable. Confirm when documents must be presented, when funds are expected, what events can delay completion and who bears each material risk. Do not rely on a headline rate or an indicative term sheet as evidence of approval.

Documents and readiness checklist

Review the asset or activity, obligor, cash-flow mechanics, Shariah governance, documentation, investor rights, credit risk and regulatory requirements. A proposed sukuk is not a guaranteed investment.

• Company registration, ownership and authorized signatory evidence where applicable.
• Financial statements, cash-flow projections and assumptions appropriate to the transaction.
• Contracts, counterparties, asset details and supporting valuations where relevant.
• Proposed amount, currency, tenor, repayment source and security arrangements.
• Bank, regulatory, AML/KYC, sanctions and other compliance requirements applicable to the parties.

Costs, risks and alternatives

Evaluate arrangement and processing fees, pricing or profit, documentary charges, legal costs, collateral requirements and potential currency exposure. Delays, incomplete documents, counterparty defaults and changes in market conditions may affect execution. Ask for a written breakdown of assumptions and costs, and obtain independent legal, tax or Shariah advice where relevant.

UAE and cross-border considerations

Requirements differ among UAE financial institutions, jurisdictions, sectors and transaction structures. Verify current rules directly with the relevant regulator, licensed institution and qualified advisers. For cross-border transactions, consider governing law, trade restrictions, documentation, foreign exchange and enforceability.

Frequently asked questions

Is financing guaranteed?

No. An application or discussion does not constitute approval, and the final decision rests with the relevant financial institution or investor.

How long does the process take?

Timing depends on due diligence, documents, transaction complexity and third-party decisions. Request a case-specific timeline rather than relying on generic estimates.

What should I prepare first?

Prepare a concise transaction summary, corporate documentation, financial information and a clear explanation of how obligations will be met.

Read the complete Sukuk guide.

Discuss your requirements

National Finance can discuss your objectives and help identify information needed for a preliminary assessment. Request a consultation.

Educational information only; not a financing offer, investment recommendation, legal, tax or Shariah opinion. All terms are subject to verification and applicable approvals.