The lack of trading in sukuks on the secondary markets means that a sukuk index would fail, according to ratings agency and index producer Standard & Poor’s (S&P).

Alka Banerjee, vice president of index services at S&P says that despite being approached by several institutional investors in the Middle East about creating a sukuk index, the idea has yet to come to fruition.

A sukuk index would give investors the opportunity to get exposure to the overall sukuk market, through a single investment.

“There is no secondary market for sukuk yet so if we made an index there would not be enough price movement to make it worthwhile,” says Banerjee. “We frequently have investors in the Middle East asking about it, and a year ago it looked like it could be possibility. But the financial crisis has brought new issuance to a standstill for most of this year.”

Sukuk issuance fell dramatically in 2008, from $34bn in 2007 to about $15bn. The fall-off occurred as the financial crisis coincided with comments from the Accounting and Auditing Organisation for Islamic Financial Institutions that some popular sukuk structures may not be truly Sharia compliant.

Issue has begun to pick up again in 2009, with sovereign issues from Bahrain in June, when it raised $750m, and Dubai’s $2bn raised in October. Abu Dhabi’s Tourism Development & Investment Company (TDIC) also raised a $1bn sukuk in october.

Banerjee says that following the default of several sukuk since the beginning of this year, it is now difficult to see when secondary trading volumes could build up enough to make a sukuk index worthwhile.