What is sukuk, in everyday language?
Sukuk are Islamic capital-market instruments represented by certificates. Investors buy the certificates, providing funds under an arrangement based on Shariah principles. The Securities Commission Malaysia (SC) defines them in terms of ownership or investment in assets using those principles. See its current Lodge and Launch guidelines.
The structure matters. A lease-based arrangement can involve rental payments; other structures use sale contracts, investment agency arrangements or partnerships. The SC's Islamic capital-market guidelines address different contracts and their requirements.
Ask your adviser to explain the proposed structure in practical terms: who owns or uses the assets, where payments come from, what investors can claim and what happens at maturity or if payments cannot be met. Those answers depend on the documents. A reference to assets should not be read as a promise that investors can simply take ownership of your factory.
Also distinguish the assets or transactions used to structure the sukuk from the projects financed with the money raised. Ask how both parts fit together in your proposal.
How does a business raise money this way?
The organisation issuing the certificates is the issuer. It may be the business itself or a separate entity established for the transaction. An arranger helps develop the financing and place it with investors. Investors subscribe for the certificates, and the funds are used under the agreed terms.
Your business still needs a workable payment plan. Depending on the structure, the business or another named entity must make distributions, periodic payments to investors, and redemption payments, amounts due when the certificates are repaid or bought back under their terms. A project with useful environmental or social benefits still needs income, savings or committed funding to support those obligations.
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| What you are comparing | Bank financing | Sukuk issuance |
|---|---|---|
| Source of the money | A bank or group of banks provides a financing facility. | Investors subscribe for certificates; banks may also invest. |
| Main discussion | The lender assesses the business and negotiates a facility. | Advisers develop the structure and disclosures, then seek investor commitments. |
| Terms to understand | Payments, costs, security and facility conditions. | Distributions, redemption, investor rights, security and issuance conditions. |
| Sustainability work | Depends on the product and agreement. | Depends on the sukuk framework, investor route and transaction documents. |
This is a practical comparison, not a rule that one route is cheaper or easier. Ask for proposals that show the full cost and obligations over the period you need financing.
What makes it green or SRI?
For project-purpose SRI sukuk, the money raised—often called the proceeds—must be used for eligible SRI projects. Calling the business sustainable is not enough to establish that the issuance qualifies. The current SC guidelines, Part 3, Chapter 7 set out this approach.
Green SRI sukuk applies that approach to environmental purposes. Social SRI sukuk addresses social purposes; a sustainability sukuk can combine green and social projects. Capital Markets Malaysia's SRI sukuk overview introduces these labels.
You may also see ASEAN Green, ASEAN Social or ASEAN Sustainability sukuk. ASEAN means the Association of Southeast Asian Nations. These labels bring additional standards from the ASEAN Capital Markets Forum; the SC's bonds and sukuk directory links the relevant documents. Your adviser should identify which frameworks the issuance will follow.
Environmental purposes
Areas to investigate include renewable energy, energy efficiency, water and wastewater management, pollution prevention, clean transport, nature conservation and adaptation to climate change. For example, a proposal could concern solar generation, equipment that uses less energy or treatment systems that improve wastewater quality.
The ASEAN Green Bond Standards, also relevant to ASEAN-labelled sukuk through the SC rules, set out project categories and require clear environmental benefits. A category name is a starting point: the project design, criteria and risks still need assessment.
Social purposes
Possible purposes include access to essential services such as healthcare and education, affordable housing, basic infrastructure, food security and employment-related support. Describe the need and the people the project aims to help. For example, an education project could improve access to training for an underserved community.
The ASEAN Social Bond Standards explain social purposes and target populations. Being a small and medium enterprise (SME), employing people or operating a clinic does not automatically make your funding request an eligible social project.
The SC's November 2019 SRI sukuk overview is useful background on environmental and social themes. Use current operative guidelines for requirements.
Shariah compliance and sustainability each need attention
Shariah compliance concerns the contracts, activities and other features of the Islamic financing arrangement. Sustainability requirements concern the eligible purposes or performance commitments behind the label, and the evidence supporting them.
A green project still needs an appropriate Shariah-compliant structure when financed through sukuk. Equally, Shariah compliance alone does not establish qualification as green or SRI sukuk.
There are connections between these considerations. The SC's June 2026 Guidance Note on Sukuk addresses Maqasid al-Shariah, the objectives of Shariah, including broader outcomes and value creation. Ask your Shariah adviser how the current guidance applies alongside the chosen sustainability framework.
How is SRI-linked sukuk different?
SRI-linked sukuk connects financial or structural terms to achievement of predefined sustainability targets. The SC's linked-sukuk FAQ distinguishes it from project-purpose SRI sukuk.
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| Question | Project-purpose SRI sukuk | SRI-linked sukuk |
|---|---|---|
| What is central? | Funding eligible SRI projects. | Achieving agreed sustainability performance targets. |
| Where can the money go? | Eligible project purposes. | General purposes may be permitted, subject to Shariah and the transaction's terms. |
| What does the issuer demonstrate? | How funds are allocated and used, and project impact or expected impact. | Performance against selected measures and targets, with external verification. |
| What changes with performance? | A target-driven change in terms is not its defining feature. | Specified financial or structural characteristics change as agreed. |
A key performance indicator (KPI) is what you measure; a sustainability performance target (SPT) is the result to reach within the agreed timeframe. Reliable starting data, meaningful targets and the contractual consequences all need attention. Do not assume a discount or a particular penalty: read the proposed terms.
For bank facilities using performance targets, see sustainability-linked loans and financing.
What does the issuance process involve?
Use this as a conversation guide. Some work happens together, and the sequence depends on the transaction.
- Assess the funding plan with an adviser or arranger. Explain what you need to finance and how payments would be met. Discuss investor appetite, the suitable investor route and whether a bank facility would serve the need better.
- Develop the structure and assemble the team. Work with legal and Shariah advisers on the contracts and responsibilities. Ask which trustee, rating, accounting and technical services your proposal needs and what each will cost.
- Select projects or performance commitments. For project-purpose sukuk, establish eligible activities and how risks will be assessed. For linked sukuk, develop measures, baselines, targets and a delivery plan.
- Prepare the framework and disclosures. Explain the financing, risks and sustainability commitments clearly. Decide how records will be maintained and who will prepare reports. SRI framework information must be publicly accessible as required by the applicable rules.
- Arrange the review and regulatory work. Your advisers establish the applicable review, Shariah endorsement, lodgement or approval requirements before issuance. The unlisted Lodge and Launch route involves filing specified information and documents; it should not be described as a general SC approval of the investment.
- Secure investors and issue. Agree the transaction terms and subscriptions. Build the funding plan around actual commitments and the issuance arrangements.
- Maintain payments, records and reports. Give the work an owner and budget. Ask how changes to the project, data or financing terms must be handled.
The SC publishes separate unlisted guidelines and retail issuance guidelines. Retail means an offer to the wider investor public; it has its own eligibility and disclosure requirements. The Islamic capital-market guidelines address the Shariah requirements.
Understand which external review is needed
For project-purpose SRI sukuk under the unlisted rules, the external-review provision applies if a reviewer is appointed. Retail SRI sukuk requires an external reviewer. SRI-linked sukuk requires pre-issuance review and post-issuance independent verification. Check additional framework and investor expectations with your adviser. These distinctions appear in the unlisted rules and retail rules.
A sustainability review and a Shariah assessment serve different purposes. Neither removes the need to assess financial obligations.
Plan for reporting after issuance
Project-purpose SRI reporting is annual and covers allocation, use, unutilised funds and project impact or expected impact, including methods or assumptions. For linked sukuk, annual performance reporting and independent verification during the specified target-assessment period are required. The retail guidelines, Chapters 21 and 23, and corresponding unlisted chapters explain the obligations.
In practice, plan to keep invoices, allocation records and relevant operating data. Distinguish a forecast benefit from a measured result and explain the basis for each.
For the detailed project-selection, proceeds, disclosure and review provisions, use the SRI Sukuk Framework guide.
Hypothetical example — a business planning solar projects
Imagine a Malaysian company develops and operates solar installations for business customers. It wants to expand across several sites and is comparing bank financing with green SRI sukuk.
Its first discussion with an arranger would cover the site pipeline, installation costs, customer contracts and cash expected to support payments. Its sustainability proposal would explain which projects the funds would support and how the company would record spending and electricity generation.
If issuance went ahead, the company would need the agreed Shariah structure, disclosures and applicable reviews, followed by reporting. Delayed installations or customers paying late would still matter to its payment plan.
This example is made up. It illustrates the preparation, without establishing an acceptable issuance size, project eligibility, price or investor demand. A company financing one rooftop system may find a bank facility more practical after comparing actual proposals.
A real transaction — TNB Kuala Muda Solar, May 2026
Tenaga Nasional Berhad's (TNB) original announcement dated 8 May 2026 records TNB Kuala Muda Solar Sdn. Bhd.'s issuance of RM1.05 billion of ASEAN Green SRI Sukuk Wakalah. The proceeds were intended, among other specified uses, to part-finance a solar project in Kedah.
The announcement identifies wakalah bi al-istithmar, an investment-agency structure, and names the investment banks acting as advisers, arrangers and managers. It shows a real project-financing transaction with defined arrangements. Its amount is specific to that issuer; the announcement does not establish completed environmental results or suitability for an SME.
When might issuance be worth investigating?
It may be worth a first discussion when your business has a substantial or repeated funding need, a credible payment case and the capacity to manage issuance and reporting. An adviser can assess whether reaching capital-market investors would help meet that need.
For an SME, start with the practical workload and economics. Sustainability benefits alone do not make sukuk the right route. Prepare your project brief, financial records and cash-flow forecast, then ask:
- Which investor route and issuer structure could apply to my business?
- What evidence would investors need, and how would subscriptions be secured?
- What are the full initial and ongoing costs, including advice, legal work, review and reporting?
- What payment dates, security, guarantees and restrictions would we take on?
- Can our team maintain the records and public disclosures over the financing period?
- How does this compare with a bank loan or Islamic financing facility for the same need?
There is no universal issuance-size or cost rule in this guide. Obtain transaction-specific advice and quotations. Choose a financing route and financing readiness can help you prepare.
Where does the SRI Sukuk and Bond Grant Scheme fit?
The scheme supports qualifying external-review costs through reimbursement. Capital Markets Malaysia's published form includes project-purpose SRI and SRI-linked sukuk within its stated scope. Confirm remaining funds, claim acceptance and the applicable conditions before including reimbursement in your budget.
Our incentives and SME support guide explains how this support fits alongside other routes. The SRI Sukuk and Bond Grant Scheme guide is the destination for detailed claim information. The grant supports an issuance expense; investors provide the financing raised through the sukuk.