Property Finance Based on Sukuk and Conventional Covered Bonds – Requirements for Establishing a Liquid Market: A Comparative Study

There is an urgent need for funding affordable housing in MENA countries and Asia, preferably long-term and maturity-matching. This requirement can be met particularly well by Sukuk and Covered Bonds. The resilience of Covered Bonds and Sukuk depends on the quality of cover assets, strictness of regulatory requirements, soundness of governing jurisdictions, and the certainty of property rights. Following the example of successfully established Covered Bonds frameworks, the following pre-conditions for establishing a liquid market can be identified: stringent requirements re. underlying assets, mandatory regulation of insolvency remoteness of cover pools, independent government supervision, and effective trading platforms. The aftermath of the credit crisis might well be an era of collateralised funding on the basis of good quality assets, of which Sukuk deserve to have their share. It might be advisable to start the development of the necessary Sukuk framework as soon as possible to be