Sukuk Are Always Oversubscribed. Then Why Do So Few Ordinary Muslims Own One?

When I lived in Bangladesh, I could not buy a sukuk. There was simply no way in for an ordinary saver like me.

That changed in December 2020, when the government held the first auction of the Bangladesh Government Investment Sukuk. It offered Tk40 billion, and 39 institutions bid Tk151.53 billion, almost four times the offer. Individuals could bid too, through a bank account, with a minimum of Tk10,000. Six months later, Bangladesh Bank set the allotment quotas. Islamic finance institutions got 70% and individuals got 5%.

We read "oversubscribed" in sukuk news so often that we stop asking who is in the book. In my earlier piece on citizen sukuk, I wrote about governments that sell sukuk straight to their people. Here I want to ask the other side of it. If demand for sukuk is so strong, why do so few ordinary Muslims hold one?

Who fills the order book

The buyers are mostly Islamic financial institutions, not ordinary savers and not companies. The Islamic Development Bank publishes who bought its sukuk, which makes it a good place to look. Its US$1 billion issue in May 2026 drew a book of over US$2.65 billion. Central banks and official institutions took 49%, banks and private banks 42%, and fund managers 9%. There is no line for individuals at all. When Dubai Islamic Bank sold a US$1 billion sukuk in June 2026, the book passed US$2.3 billion, and banks and private banks took 77%, with fund managers on 21%.

Bank Negara Malaysia's Bond Market Report 2025 splits the domestic holders of government securities, conventional and Islamic together. Banks hold 42.9%, pension funds 41.6% and insurers 7.9%. Everyone else, which means companies, government agencies and individuals combined, holds 2.9%. Indonesia has sold retail sukuk since 2009 and has tried hard to bring savers in. Even there, individuals hold 8.4% of all government securities, bonds and sukuk counted together.

A door built narrow

Most sukuk were never made for small savers. Sharjah's US$1 billion sukuk of 2018 had a minimum of US$200,000. In Malaysia, The Edge reported in 2021 that standard lots were RM10 million for government paper and RM5 million for corporate paper.

And the oversubscription is part of the reason. Daniel Brown of CGS-CIMB told The Edge, "As market demand outstrips supply, issuers have little incentive to auction bonds in smaller lot sizes." Big investors want big lots, and big lots are cheaper for the banks to arrange. So when institutions already cover a book two or three times, a small saver only adds work.

The people who sell to retail have little reason to push either. In 2021, the one platform selling seasoned bonds and sukuk to Malaysian retail investors told The Edge its margin was "very thin".

When the door opened, many savers still stayed away

Some markets opened the door properly, and ordinary savers still did not come.

Malaysia is the clearest case. In 2014, DanaInfra, a government infrastructure company, issued a RM100 million retail sukuk, and The Star's headline called it oversubscribed. Read the detail, though. The public made 400 applications worth RM3.95 million, while four placement agents applied for the full RM100 million. Public demand was about 4% of the issue.

Trading was no better. In 2015, a broker told The Edge there was "almost no demand whatsoever" for the exchange-traded sukuk, and a rating agency put it down to retail investors being unfamiliar with them. Three years later, Private Banker International put the retail segment at about MYR13.5 billion in a MYR1.3 trillion market and said the problem was "not simply a matter of supply but demand as well". By 2021, the seasoned bond platform had about 400 investors and RM10 million of trades over two years.

Cost explains some of it. The Edge listed a 0.5% processing fee, a 0.18% yearly platform fee and a spread of about 0.5%, which takes a real bite out of a sukuk paying 4% to 6%. The tenors were long, too. A rating agency analyst told The Edge that beyond five years, "you are really stepping into the sophisticated investor market".

So I think both explanations hold. The market kept small savers out, and in Malaysia, when it let them in, many did not come.

What changed the result in Indonesia was the product. It sold retail sukuk from Rp1 million, online, through apps people already had, with short tenors, and in 2026 one series drew 93,548 investors. Malaysia's Sukuk Prihatin, sold inside online banking, filled its book as well. In both cases, ordinary savers bought.

Do institutions buy because they have no choice?

Some of them, yes. An Islamic bank cannot hold most of the liquid assets a conventional bank relies on, such as interest-bearing treasury bills. An IMF paper on the Gulf pointed to "a general lack of Shariaah compliant instruments" for short-term liquidity. In 2024, Fitch reported that the UAE, Saudi Arabia, Kuwait, Oman, Jordan, Nigeria and Egypt issued no short-term government sukuk at all.

Chen and co-authors, studying Malaysian sovereign sukuk, found that Islamic investors hold only Islamic bonds "because of mandates". An Islamic bank, a Takaful fund or a Shariah fund cannot move to a conventional bond when a sukuk looks expensive or less attractive. It buys what is on offer, and then it usually holds to maturity. Fitch says this buy-and-hold habit is the main reason sukuk trade less than bonds.

So part of every full book is investors with few other places to go.

Is sukuk cheap money for the issuer?

If the buyers are captive, issuers could borrow more cheaply through sukuk. Mostly, the evidence says they do not.

Fitch compared 40 pairs of sukuk and bonds from the same issuers in the Gulf, Malaysia, Indonesia and Türkiye. Between 2018 and 2022, their yields moved closely together, with a correlation of about 0.9, and Fitch found pricing mostly similar. The Chen study went the other way and found Malaysian sovereign sukuk yielded 4.8 basis points more than comparable conventional bonds.

The exceptions show up where buyers have the fewest choices. In Pakistan, a fund manager at Al Meezan wrote in 2023 that government ijarah sukuk were clearing 86 to 130 basis points below comparable conventional bonds. He called it a discrepancy that hurts Islamic investors. That is one practitioner's analysis, not a formal study. In the Gulf, bankers quoted by GlobalCapital said sovereign sukuk books averaged 4.8 times cover against 3.8 times for conventional bonds. On one conventional deal, Saudi Arabia paid a new issue premium of about 15 basis points. On its sukuk, it paid 0 to 5.

I read this narrowly. Sukuk are not cheap money in general. A full book can save an issuer a few basis points at launch, and where Islamic investors have almost nowhere else to go, the saving can be large. In that case it is the Islamic investor who pays for it.

What "oversubscribed" really counts

The headline number also says less than it seems to. The International Capital Market Association's handbook describes "order inflation", where an investor places an order "larger than its true internal demand" because it expects to be scaled back.

It happens with sukuk as well. In 2013, Dubai Islamic Bank's US$1 billion sukuk drew a US$14 billion book, and a Rasmala fund manager said "a large portion of the $14 billion book was fluff." In November 2025, Sharjah's US$750 million sukuk had a peak book of US$2 billion. Once the price tightened by 35 basis points, the final book was US$1.7 billion.

Books often shrink when the price tightens, and that alone does not prove padding. Still, "oversubscribed four times" counts orders at one moment. It does not count how many people wanted the sukuk.

Back to the bank counter

The full book and the empty retail line come from the same structure. Institutions with few other options fill the book, and the lots are sized for them. Distributors earn little from small savers. Where small savers were let in on poor terms, with long tenors, high fees and no app, many stayed away.

What worked was plain. A small ticket, a short tenor, a return above a deposit, sold inside the app or bank people already use. Indonesia did it, Malaysia did it with Sukuk Prihatin, and savers came.

Bangladesh now reserves 10% for individuals in its sukuk allocations, so the door I could not find back then is a little wider. If the next sukuk is built for the saver and not only for the book, will the ordinary Muslim finally walk through it?

Disclaimer: The views expressed in this blog are not necessarily those of the blog writer and his affiliations and are for informational purposes only.

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