The global Islamic finance market has grown to exceed USD 4 trillion, driven by investor demand for ethical and Shariah-compliant financial instruments. At the heart of many Islamic capital market transactions lies the Sukuk, or Islamic bond — a structure designed to provide returns to investors without violating the prohibition on interest (riba).
Within these arrangements, the trustee plays a critical role in safeguarding investors’ interests, ensuring that the structure remains Shariah-compliant, and providing independent oversight throughout the Sukuk’s lifecycle.
In a Sukuk structure, a trustee (or security trustee) is appointed to hold legal title to the underlying assets on behalf of the Sukuk holders. This trust-based mechanism replaces the conventional debt relationship found in traditional bonds. The trustee’s duties often include:
Holding legal title to the Sukuk assets or underlying collateral for the benefit of investors.
Administering payments received from the obligor or project and distributing them to Sukuk holders.
Ensuring compliance with the transaction documents and covenants.
Acting as an independent fiduciary, particularly during default or restructuring scenarios.
Protecting investor rights by taking enforcement action if the issuer fails to perform.
These functions ensure that investors maintain an equitable interest in the assets — a cornerstone of Shariah-compliant financing.
Shariah compliance is essential to Islamic finance. Trustees contribute by:
Monitoring adherence to Shariah principles as outlined in the fatwa issued by the Shariah Supervisory Board.
Maintaining segregation of assets to prevent commingling of Shariah and non-Shariah funds.
Ensuring transparency in cash flow management, profit distribution, and use of proceeds.
Facilitating ongoing certification and communication between the issuer, the Shariah board, and investors.
In many jurisdictions, trustees work closely with Shariah advisors and legal counsel to ensure that documentation and practices remain aligned with Islamic finance standards (e.g., AAOIFI or IFSB guidelines).
Islamic finance is inherently international, with issuers, investors, and assets often spread across multiple jurisdictions. Trustees add value by:
Coordinating with local counsel and regulators to ensure compliance with each applicable legal framework.
Managing cross-border security interests, particularly where the Sukuk is asset-backed or asset-based.
Providing continuity and governance oversight throughout the issuance and redemption process.
By doing so, trustees enhance investor confidence and help bridge the gap between traditional and Islamic financial markets.
When a Sukuk faces stress or default, the trustee acts as the protector of investor interests.
The trustee’s role includes:
Reviewing and enforcing security rights or guarantees under the trust deed.
Coordinating restructuring negotiations in a Shariah-compliant manner.
Ensuring that remedies or enforcement actions respect Islamic principles and the original structure’s intent.
This impartial, fiduciary function is critical in maintaining confidence in Sukuk markets, especially during volatile periods.
As Islamic finance continues to expand across global markets, the role of the trustee becomes ever more vital. Trustees not only protect investors but also help maintain the integrity and Shariah compliance of complex financial structures like Sukuk.
By combining fiduciary responsibility, regulatory expertise, and Shariah awareness, trustees serve as a bridge between ethical finance principles and modern investment infrastructure — reinforcing trust, transparency, and confidence in the global Islamic capital markets.
