The sukuk industry faces a significant challenge as UK and US courts rule on defaults of Islamic instruments and try to impose those rulings in other jurisdictions, according to a report by Deutsche Bank.

The report says that enforcing decisions made in UK and US commercial courts in jurisdictions with their own local Islamic courts could be troublesome. It raises concerns about enforcing decisions made by foreign courts where there are Islamic courts, which may rule differently.

There are now three sukuk issues in default, all being handled by UK and US courts. Defaults of sukuk issued by Saudi Arabia’s Saad Group, Kuwait’s Investment Dar and the US’ East Cameron partners will “provide valuable insight on the level that sukuk holders sit within the credit structure and therefore, most importantly, an estimate on recovery value,” said the report.

Sukuk holders need to be aware that they “do not have the security of an asset-backed security or secured debt”, according to Deutsche Bank.