Report: Ground-Breaking IILM Sukuk Faces Secondary Market Challenge

The $490 million, three-month Sukuk, issued by the International Islamic Liquidity Management Corp (IILM), was auctioned to seven primary dealers from Asia, theMiddle East and Europe. However, this will only be a major breakthrough for Islamic finance if IILM sukuk are actively traded by Islamic banks, rather than held to maturity. It is not clear whether the existing primary dealer network - which includes only two purely Islamic financial institutions - is broad enough to engineer trade in IILM sukuk across major markets. The prevalence of conventional banks in the dealer group suggests the IILM may have decided to choose the largest possible primary dealers in order to maximise distribution of the sukuk. But it also raises the possibility that the instrument could be bought by conventional institutions rather than the Islamic banks which most need it.