Shari’ah compliance was a factor in the downturn of Islamic bond (sukuk) issuance in 2008, Moody’s said on Thursday.

Global sukuk issuance slumped by more than 50 percent in 2008, which is largely attributable to the international financial crisis.

But Moody’s said that debates over the Shari’ah compliance of some Sukuk structures, ignited by the Accounting Auditing Organisation for Islamic Financial Institutions (AAOIFI), also had a part to play in the slowdown.

“Early in 2008, the AAOIFI recommended that Islamic finance market participants should refrain from issuing sukuk structures that have a purchase undertaking or a guarantee from the sukuk issuer to repurchase at a specific price at a future date,” said Faisal Hijazi, Moody’s business development manager for Islamic finance.

“This is because AAOIFI believed that this structural mechanism is not compliant with a fundamental principle of Shari’ah, namely profit and risk-sharing,” he explained.

Ijarah sukuk, a form of capital leasing, became the dominant Sukuk structure in terms of issuance volumes in 2008, replacing Mudarabah, which was the dominant structure in 2007, Moody’s said.

A recent report by Kuwait Financial Centre (Markaz) revealed that while both conventional and sukuk markets plunged in the GCC in 2008, sukuk actually managed to grow its market share.

Sukuk’s market share grew to 45 percent of total the value issued by GCC bond markets, from 40 percent in 2007.