Sheikh Selim
The United Kingdom’s transformation into the leading Western center for sukuk offers a compelling lesson for emerging Muslim majority economies seeking to build capital market infrastructure rather than simply issue debt. London never attempted to compete with Malaysia or the Gulf states on issuance volume. Instead, it built the legal scaffolding, listing venues, professional expertise and regulatory credibility that allowed nearly fifty billion dollars to flow through sixty-six sukuk listings on the London Stock Exchange between 2014 and 2024. This is a strategy of facilitation rather than domination, and it is precisely the model Bangladesh should study as it considers a role as South Asia’s sukuk hub.
In this article, we examine London’s success as a model and open a discussion on whether and how Bangladesh can build South Asia’s sukuk hub. This is not an unrealistic ambition, yet it is also not a simple probability. We argue why and how it can become a genuine possibility.
Why Bangladesh Is a Plausible Candidate
Bangladesh already has the demand side of the equation in place. It is one of the largest Muslim majority countries in the world, its banking sector already carries a substantial Islamic finance segment through institutions such as Islami Bank Bangladesh and other Shariah based lenders, and its government has experimented with sovereign sukuk issuance in recent years to fund infrastructure and social projects. What Bangladesh lacks is not appetite but architecture: the legal certainty, tax treatment, listing infrastructure, and professional ecosystem that turned London into a magnet for issuers who never intended to raise money domestically.
This is where the UK example becomes directly instructive. London’s success rested on four pillars: a stable legal framework built on English law that international issuers trusted, tax neutrality reforms that removed the double taxation penalty historically imposed on Islamic instruments, a central bank facility offering Shariah compliant liquidity tools, and a dense cluster of law firms, underwriters and rating agencies who specialized in structuring these deals. Bangladesh can mimic each of these pillars, even at a smaller scale suited to its own market.
Motivation from the UK Model
Dhaka needs a predictable and internationally recognizable legal framework for sukuk issuance, ideally harmonized with widely accepted Shariah governance standards so that Gulf and Southeast Asian investors do not need to reinterpret local rules for every transaction. Alongside this, tax neutrality matters enormously; if sukuk structures face heavier taxation than conventional bonds because of the underlying asset transfer, foreign capital will simply go elsewhere.
Bangladesh Bank could also develop its own version of an Alternative Liquidity Facility, giving domestic Islamic banks a compliant instrument that satisfies liquidity requirements without forcing them into interest bearing instruments.
Perhaps most importantly, Bangladesh needs to cultivate the same cluster of professional expertise, meaning local law firms, accounting practices and university programs that train specialists in Islamic capital markets, so that structuring costs fall over time.
There is also a geographic advantage worth exploiting. Dhaka sits within reasonable time zone proximity to both Gulf capital and Southeast Asian markets such as Malaysia and Indonesia, the two largest sovereign sukuk issuers globally. If Bangladesh can position itself as a listing and advisory venue bridging Gulf liquidity with South Asian infrastructure financing needs, it could replicate London’s core function: not the largest issuer, but an indispensable connector.
Green and ESG linked sukuk represent perhaps the most realistic near-term opportunity for Bangladesh. The country faces enormous climate adaptation financing needs, ranging from flood defenses to renewable energy, and the global ESG sukuk market grew to twenty-four billion dollars in 2025 alone. Building a sukuk platform specifically around climate resilience projects would allow Bangladesh to align its development priorities with the fastest growing segment of the global Islamic finance industry, carving out a differentiated niche rather than competing head on with more established issuers.
How Strong Is the Regional Competition?
Bangladesh would not be entering an empty field. Pakistan is by far the more advanced regional player. It ranked among the top five sovereign sukuk issuers globally in 2025, raising over ten billion dollars, and it has decades of institutional experience with Islamic banking regulation, a dedicated Shariah advisory apparatus within its central bank, and an established domestic investor base for sukuk instruments. Pakistan’s challenge has historically been macroeconomic instability and currency volatility rather than a lack of technical capacity, which means that if its fiscal situation stabilizes, it could easily crowd out a newer entrant like Bangladesh simply on the strength of its track record and existing investor relationships.
The Maldives presents a quite different kind of competition. It is far smaller in absolute market size, but it has actively marketed itself as a boutique Islamic finance and fintech friendly jurisdiction, leveraging its tourism driven capital inflows and a nimble regulatory environment to experiment with digital sukuk platforms. The Maldives cannot match Bangladesh’s scale, but it could capture niche segments, particularly smaller tokenized or retail oriented Islamic instruments, faster than a larger and more bureaucratic neighbor.
Sri Lanka and India also loom in the background. Sri Lanka has periodically explored Islamic finance instruments to diversify its funding sources during fiscal distress, while India, despite its much smaller Muslim finance sector relative to its population, has the sheer market depth and financial infrastructure to become a serious player if it ever chose to prioritize the segment.
Given this landscape, Bangladesh’s realistic path is not to declare itself the region’s dominant sukuk market but to claim a defensible niche the way London did, focusing on infrastructure and green sukuk issuance, cultivating specialist legal and advisory capacity, and building credibility through consistent, well governed sovereign issuance before trying to attract foreign corporate issuers. Pakistan’s head start in institutional depth and the Maldives’ agility in digital innovation mean Bangladesh cannot win on either front alone. Its comparative advantage lies in combining a large and genuinely underserved Islamic banking population with acute climate financing needs, a combination that, if paired with the kind of patient legal and regulatory reform the UK undertook over more than a decade, could make Dhaka a credible regional hub even without ever becoming South Asia’s largest issuer by volume.
Conclusion
London’s lesson for Bangladesh is that market leadership in Islamic finance does not require issuance dominance. It requires patient investment in legal certainty, tax neutrality, liquidity tools and professional expertise, sustained over many years, aimed at a specific and defensible niche.
Bangladesh has the demographic and developmental case to pursue this strategy, particularly around green and climate linked sukuk, but it will need to move deliberately against a Pakistani rival with deeper institutional experience and a Maldivian rival with sharper regulatory agility. The prize, a genuine South Asian sukuk hub connecting Gulf capital with regional infrastructure needs, is achievable, but only if Bangladesh treats the UK’s decade long institution building exercise as the template rather than expecting rapid results from sovereign issuance alone.
