Despite a dramatic decline in volumes in 2008, the long-term perspectives for global sukuk issuance are still good, Standard & Poor's Ratings Services said yesterday in a report.

"The decline in sukuk issuance in 2008 was as a result of global market turmoil, drying up of liquidity, widening of credit spreads, and investors' wait-and-see attitude," said Standard & Poor's credit analyst Mohamed Damak.

"Although difficult to measure, part of this decline could also have been due to comments about the Shariah compliance of some sukuk by the Accounting and Auditing Organisation for Islamic Financial Institutions." More than 45 per cent of sukuk issued in 2008 were 'ijara' (lease financing), most probably as a direct consequence of the debate about Shariah compliance among some scholars.

The value of sukuk issued in 2008 dropped by more than 56 per cent to $14.9 billion compared with 2007. "We do not expect the market to start reviving before the second half of 2009 or early 2010," added Damak.

Long-term prospects for the sukuk market remain strong, however. Although volumes dropped dramatically in 2008, the sukuk market attracted about the same number of issuers.

Conservative estimates of the pipeline of sukuk that have been talked about are in excess of $45bn.