Fractional sukuk testing seeks to pave way for wider retail investment

Currently, accessing the sukuk (Islamic bonds) market requires a minimum investment of $200,000. This remains a major barrier for retail investors to buy into these instruments, and keeps the size of the market restricted, experts say.

Abu Dhabi Islamic Bank (ADIB), a leading Islamic financial institution, has sought to break this barrier by testing fractional sukuk technology in a safe environment to make sukuk investing more accessible to retail customers.

The announced on Tuesday that it has received the initial approval from the Regulations Lab within the UAE government under the supervision of the Securities and Commodities Authority (SCA). This supports the UAE leading position as a global hub for technological innovation and financial services.

With fractional sukuk and as per the initial approval given to ADIB, retail investors will be able to invest as little as $1,000, giving them access to the benefits of fixed-income financial products. This presents a new investment opportunity for customers, allowing them to invest in a new asset class with smaller investment amounts offering. This aims to provide a set of flexible laws and legislation to conduct tests on fractional sukuk, ensuring the highest levels of safety and risk mitigation in applying new technologies and avoiding risks that arise during the experimental phases. Ultimately, this will foster a secure environment for technological advancement and accelerate the development and market availability of fractional sukuk.

Under the agreement, a comprehensive legislative work system will be established to test the fractional sukuk technology that digitally divides a sukuk into small portions and allows individual investors to pool their money into buying fractional shares of typically expensive corporate sukuks without needing significant capital. Once launched, it will be the first fractional sukuk of its kind in the region, enabling investors to build a tailored sukuk portfolio with a minimum investment of $1,000.

Mohamed Abdelbary, ADIB Group CEO, said: “Sukuks are a great asset class that meet Islamic finance principles, we want to make it more easily accessible to retail investors. As part of our 2035 vision to become the world’s most innovative Islamic bank, we are forging ground-breaking new partnerships with FinTechs to deliver pioneering initiatives to meet the evolving customer needs. We are delighted to be partnering with the Regulations Lab, the Securities and Commodities Authority and the relevant authorities to test and launch this new digital asset. We look forward to seeing the development and refinement of the product to better suit our customers’ needs and values.”

The cooperation between the three entities aims to provide a set of flexible laws and legislation to conduct tests on fractional sukuk, ensuring the highest levels of safety in applying new technologies and avoid the risks that arise during its experimental stages, thus enhancing a safe environment for the progression of this technology and accelerating the process of its development and availability in the market.

Once the product is tested and launched, customers will be able to create a customised Sukuk portfolio with a minimum investment threshold of $1,000, tailored to align with their risk tolerance, preferred sectors, and maturity periods. This allows them to select Sukuk based on desired returns, credit ratings, and other criteria that help guide their investment decisions.