INTRODUCTION
On 21 February 2026, the UAE government issued its first 7-year Treasury Sukuk amounting to Dh 550 million. This was a major positive development for the Islamic financial industry. This shows that the Islamic bonds or the sukuk have become an integral part of the financial system in Dubai.
Sukuk bonds differ from normal bonds that people know about. Normally, when you buy bonds, you lend money and get interest on that money. However, in Islamic bonds or the sukuk, you get a share of assets or projects. In Islamic bonds, you get money based on the profit or rent earned from assets. Dubai is one of the largest Islamic bonds or sukuk platforms in the world. At the end of 2025, the overall value of outstanding sukuk bonds listed on Nasdaq Dubai exceeded USD 100 billion.
For investors, the Islamic bonds or the sukuk provide an opportunity to access the growing investor base in Dubai. Investors get Shariah-compliant conditions that provide an opportunity to attract not only Islamic investors but also socially conscious investors worldwide. For individuals, there may be an opportunity to get dividends depending on the performance of the assets.
WHAT ARE SUKUK?
Sukuk bonds are Islamic bonds that conform to Shariah laws. Unlike bonds, which allow investors to lend money to a borrower at a particular rate of interest, sukuk bonds offer investors a feeling of owning certain assets. The assets determine the rate of return.
Common Sukuk Structures in Dubai
The three most preferred types of Sukuk by Dubai issuers are:
Sukuk Al-Ijara (Lease-based Sukuk): This is one of the most commonly used Sukuk instruments in Dubai, especially in the real estate industry. In this method, the issuer sells the asset, like the real estate, to the SPV, who then signs a lease agreement with the issuer, hence distributing the Sukuk certificates to the investors, who then receive rentals, while the issuer purchases the asset after the lease period. Real estate companies are huge fans of this method, especially for offices and shopping malls.
Mudarabah Sukuk (Profit-sharing Sukuk): It is utilized in trade finance instruments. In this form, one party is in charge of capital (rabb-ul-mal), while the other is in charge of business operations (mudarib). They share profits in a ratio that was fixed in the beginning, while losses are for the capital provider, except for negligence. These are less popular but are still gaining traction in logistics.
Musharakah Sukuk (Partnership Sukuk): This is a concept of a joint venture. All the parties involved in the venture would enjoy the profit and loss in a predetermined proportion. It is usually used in the development of infrastructures such as the construction of a road or a power plant. The investors sell back the units to the issuer at the end of the maturity period.
LEGAL FRAMEWORK FOR SUKUK IN DUBAI
Dubai has two primary legal environments that support the issuance of sukuk, namely the onshore UAE legal environment, which is governed by the UAE's federal laws, and the Dubai International Financial Centre (DIFC) legal environment, which is based on common law. This allows issuers to select the legal environment that best supports their needs, depending on their investor base and the structure of the issue, with many international issuances using the DIFC legal environment and local issuances using the onshore legal environment.
The Two Legal Zones in Dubai
On the one hand, jurisdiction is subject to UAE Federal Law. The UAE Central Bank is responsible for the regulation of licensed banks and financial institutions. The Securities and Commodities Authority (SCA) regulates the securities markets and the public offerings.
DIFC
DIFC is a financial free zone with its legislation and judiciary similar to common law jurisdiction and its financial services regulator is the Dubai Financial Services Authority (DFSA). Foreign investors are attracted to DIFC because of its structural similarity to other financial centers in the world, such as London and New York.DIFC Rules Made Simple
DIFC Markets Law (Law No. 5 of 2021) and DFSA Markets Rules require that information and risks be disclosed in a prospectus prior to the offer or listing of sukuk. In addition, the DIFC Securitization Law (Law No. 1 of 2004) allows for Special Purpose Vehicles (SPVs) to be utilized for holding sukuk assets as well as issuing sukuk certificates, which segregate sukuk from the originator’s creditors.
Similarly, DFSA also has its rules for issuing sukuk under its Markets Rules as well as Islamic Finance Rules, which require that sukuk comply with its rules on disclosure, provision of audited financial statements, as well as Shariah compliance for sukuk issued as Shariah-compliant products upon approval from qualified scholars or Shariah boards. The size of sukuk that needs to be issued for approval also does not have a minimum size requirement, as it is dependent upon listing as well as market conditions, as well as the complexity of deals.UAE National Rules for Onshore Sukuk
Sukuk issued onshore are subject to the general financial system in the UAE as stipulated in the Federal Decree Law Number 14 of 2018 and other relevant legislation. The Central Bank regulates financial activities carried out by licensed bodies, and the SCA regulates public securities and sukuk listings.
Sukuk issued onshore are required to be approved by Shari’a supervisory boards in accordance with guidance provided by the UAE Higher Shari’a Authority. AAOIFI sukuk standards are widely adopted.
Public sukuk offers issued onshore require approval in respect of the prospectus and compliance with SCA rules. The language of the offering documents will be Arabic. An English version of the offering document will be made available for the benefit of overseas investors.
The use of locally registered assets and reserve/liquidity structures will vary depending upon the transaction and the relevant documentation. There are no general rules applicable to all sukuk.Rules for Listing Sukuk on Exchanges
Nasdaq Dubai, in DIFC, is the principal international venue for sukuk listings in Dubai. It requires compliance with DFSA’s regulatory standards and its own listing requirements, which include a DFSA-approved prospectus, audited financial information for a minimum period, minimum market capitalisation for the listed debt as well as for Islamic securities, which requires Shariah certification. The use of credit rating and deal size depends on investor demand and market norms.
The onshore exchanges, DFM and ADX, have their own SCA-regulated listing conditions for debt and sukuk securities. These exchanges' conditions are primarily intended for local investors but can be followed by international investors as well.How the Laws Protect Investors
Both systems have provisions for the protection of sukuk investors. For instance, separate special purpose vehicles are established to ring-fence sukuk assets from those of the originator. These vehicles provide a higher degree of security for sukuk investors in case of financial difficulties faced by the originator. Reserve accounts are also common in many sukuk issues, which are set out in the agreement.
In case a sukuk is issued from a DIFC platform, which is subject to the jurisdiction of the DIFC Courts, sukuk investors can refer to a common law system with experienced judges dealing with complex financial disputes. For onshore sukuk issues, sukuk investors can refer to UAE Courts applying federal law and various financial laws. The dual systems offer investors a choice between a common‑law environment and the local UAE system, so it is important to identify which regime applies to each sukuk issue.
PRACTICAL RELEVANCE FOR BUSINESSES AND INVESTORS
Sukuk help businesses raise money in a Shariah‑compliant way and give investors a channel to benefit from Dubai’s growth.
Why Businesses Choose Sukuk
Companies are also able to raise funds for large projects, such as buildings, roads, and infrastructure, through sukuk issuance. Real estate is a suitable sector for sukuk issuance.
Large construction and corporate groups in Dubai have issued sukuk to raise funds for new communities, commercial projects, and green/sustainability-linked sukuk issuance, attracting investors from the region’s Islamic community and international ethical investors. The issuance of sukuk provides a wider pool of investors, lower costs of funds compared to borrowing from banks, and a sense of compliance with Islamic finance values. Real estate and infrastructure projects consider that payments are usually made according to a scheduled period. Access to sukuk issuance provides a company with an opportunity to implement projects that could otherwise be delayed due to tight bank credit conditions.Why Investors Choose Sukuk
Investors are attracted to sukuk due to their potential to provide an opportunity to invest in tangible assets with a fixed return profile that meets Shariah requirements. The investor universe generally includes government-related parties, banks, family offices, Shariah-compliant and ethical funds, and institutional investors.
Investors may also have the opportunity to invest in specific assets or projects through sukuk and receive regular returns on a monthly, quarterly, or semi-annual basis based on the expected profit on an asset or project. The sukuk market in Dubai has recorded remarkable growth; the outstanding sukuk listings on Nasdaq Dubai exceeded USD 100 billion by the end of 2025. Some jurisdictions have amended their tax laws to ensure that sukuk are taxed in a similar manner to conventional bonds. For sukuk backed by property assets, the indicated profit rate can be attractive compared to other fixed-income products.Real‑World Impact
For businesses, sukuk facilitates expansion through funding towers, shopping centers, and community projects, thereby adding to the changing face of Dubai’s skyline.
For individuals, sukuk provides an additional avenue for investing, available through the banking network, requiring lower minimum investments than direct investments in properties or projects. Some retirement funds and pension plans include sukuk in their fixed-income or Shariah-compliant portfolios as part of the overall equity allocation.
At the macro level, sukuk have emerged as an important means of funding development in Dubai, providing an opportunity for investors to participate in the growth of the UAE while adhering to Islamic principles.
KEY RISKS AND COMMON INVESTOR MISTAKES
Sukuk appear safe because they are linked to real assets, but investors still face important legal, credit and market risks. Many losses come from simple mistakes that can be avoided.
Legal and structural risks
A key risk is the transfer of assets to the SPV. This type of risk can also be referred to as asset transfer failure or imperfect title transfer.
Another type of risk that exists is Shariah compliance drift. A sukuk may be Shariah compliant to start off with, but over time the way in which the asset is used may drift in a way that some investors may find uncomfortable.
Another type of risk that exists in sukuk is SPV governance risk. The SPV should be governed in a way that is in the best interest of the sukuk holders. There should be clear rules on how decisions are made. Too much influence from the parent can create conflict.Market and credit risks
Default risk is still important, since if the underlying business is not successful, the rental or project income may not be sufficient to pay the sukuk. Sukuk backed by real estate may have better asset backing than unsecured sukuk, but they still have the risk of rental defaults and declines in the value of the properties.
Liquidity risk is the risk that the investor may have to sell the sukuk before the maturity date. Although there is the possibility of trading sukuk in the secondary market through the Nasdaq Dubai, there is the risk that the investor may have to sell at an unattractive price, since the issue may not have traded frequently.
Currency risk is found in cross-border sukuk, where the investor may face the risk of currency gains or losses, since many international sukuk issued by the GCC states are in US dollars, while the investor’s home currency may be the Dirham or another currency.
Changes in interest rates have an impact on the price of sukuk, since if the interest rate in the market rises, the price of existing sukuk with fixed nominal yields will fall, and vice versa.Common investor mistakes
a. Believing that Shariah approval means no risk is involved. Shariah boards only consider religious compliance, not business viability.
b. Failing to read the important legal documents. Investors should not just read the summaries, but also the prospectus and the legal documentation, where the important legal issues are set out.
c. Ignoring reserve and liquidity arrangements. Sukuk issues often contain reserve or liquidity arrangements, and the extent of these arrangements should be understood.
d. Following the herd into fashionable sectors. Investors should not blindly invest in the most fashionable sukuk issues, where the valuations may be high and the prospects for good returns in the future may be low.
e. Over-reliance on the word 'sovereign'. Sovereign sukuk issues, because they carry the word 'sovereign', are often perceived to be low risk, but in fact they carry credit risk and market risk, and the new issues have not had time to prove themselves over the long term.
New and evolving regulatory risks
Shariah principles, as well as accounting principles related to the structure of sukuk, are still developing, and new principles related to the sale of assets and ownership have created debate among Shariah scholars, potentially leading to changes in the perception of some types of sukuk in the future.
Sustainable/green sukuk issuance is growing rapidly, but it is important for investors to ensure that the environmental attributes are properly verified.
Cross-border issues are also driven by the increasing regulation in key investor markets, such as the European Union, in relation to securities regulations and sustainable finance.
RECENT TRENDS AND DEVELOPMENTS
Sukuk issuance related to Dubai has reached a record level. The debt market developed rapidly in 2025, driven by demand, local market infrastructure, and new product structures.
Record issuance growth
The debt capital markets of the UAE, including sukuk, continued to grow in 2025. At the end of 2025, the total outstanding value of sukuk listed on Nasdaq Dubai exceeded USD 100 billion, and the exchange also recorded a total of USD 30.6 billion in new debt listings across 60 sukuk and debt listings, one of its best years to date. Real estate and infrastructure are key underlying sectors for sukuk linked to Dubai.Government Enters the Market
On 21st February 2026, the UAE government announced its debut 7-year Islamic treasury sukuk issue, which is sized at around AED 550 million. The announcement signifies that sukuk instruments are not only being tapped by corporations and government-related entities but are becoming increasingly important in the UAE’s government market. It is believed that there are more government sukuk deals to come, which would result in a deeper sukuk yield curve.Rise of sustainable sukuk
Sustainable sukuk, also known as green sukuk, has developed rapidly in the market. In the Middle East, sustainable sukuk issuance recorded a historic high of about USD 11.4 billion in 2025, an increase from about USD 7.9 billion in 2024, making it a significant portion of the overall sustainable bonds issuance in the region. Large UAE-based issuers, such as real estate and utility giants, have launched green and sustainability-linked sukuk, funding energy-efficient buildings, renewable energy projects, and other green investments. International best practices and local regulations have driven the use of more transparent use of proceeds documents and stronger external review, particularly in the context of attracting ethical funds and ESG-focused funds.Real estate still dominates
Real estate companies continue to feature prominently among the most prolific sukuk issuers in Dubai, and the recent benchmark-sized issues by the biggest developers have in some cases been well subscribed. These transactions demonstrate the appeal of the relatively high yields offered by sukuk linked to real estate, where apartments or offices can offer rental income that can support the payment of the sukuk. Oversubscription of well-structured issues may indicate that the demand for good quality real estate-linked sukuk may outstrip supply
CONCLUSION
The sukuk market in Dubai also offers investors a platform to pursue returns on real assets on a regular basis while also being able to follow Islamic principles. The above note has discussed the fundamentals of sukuk, the presence of a dual legal system, its application to business, its risks, and recent market trends.
The Treasury sukuk issuance in 2026 marks a new phase in the development of the sukuk market in Dubai and the UAE debt capital market as a whole. Investors who understand these instruments, learn from common mistakes, and adhere to a disciplined checklist will be able to build more resilient portfolios. Sukuk is not just another financial product; it is a means to support growth while remaining true to faith principles.
