While both can play a role in income-oriented portfolios, they represent fundamentally different approaches. Understanding these differences is essential when assessing how each may fit within a broader investment strategy.
This article examines how sukuk and private credit work, their respective characteristics, and how they may complement a diversified portfolio for GCC investors.
Key takeaways
Sukuk are Shariah-compliant investment certificates linked to underlying assets, projects, or economic activities, with returns generated through the underlying structure.
Private credit involves lending directly to companies through private financing arrangements, offering income potential in exchange for higher credit and liquidity risks.
Sukuk generally offer greater liquidity and more established credit assessment frameworks than private credit, while private credit provides higher return potential with additional risk considerations.
For GCC investors, the choice between sukuk and private credit depends on portfolio objectives, liquidity needs, investment horizon, risk tolerance, and Shariah considerations.
What is sukuk?
A sukuk is a Shariah-compliant investment certificate that provides investors with an interest in an underlying asset, project, or economic activity. Depending on the structure, investors may receive returns generated from sources such as lease income, asset-related revenues, or profits from a defined activity.
Sukuk are often compared with conventional bonds because both can provide investors with periodic income. However, the underlying principles differ. Conventional bonds represent a lending relationship, where investors provide capital in exchange for interest payments. Sukuk structures are designed around Shariah principles, where returns are linked to ownership interests or participation in an underlying economic activity.
While some sukuk may exhibit characteristics similar to conventional fixed-income instruments, their legal and structural foundations differ.
The sukuk market has expanded significantly over recent years. Global sukuk outstanding surpassed $1 trillion by the end of 2025, with the GCC representing one of the largest regional markets.[1] Saudi Arabia and the UAE have been key contributors, supported by sovereign issuance, infrastructure development, and broader capital market growth.
For investors, three characteristics are particularly relevant.
What is private credit?
Private credit refers to lending provided directly to companies by non-bank lenders, typically through specialized investment funds. Unlike public bonds, which are issued and traded in public markets, private credit investments are negotiated directly between lenders and borrowers.
Investors in private credit funds generally earn income through contractual payments made by borrowers. Many private credit strategies focus on floating-rate loans, meaning returns may adjust with changes in benchmark interest rates.
Private credit has grown significantly over the past decade as companies have sought alternative financing sources and institutional investors have looked for income and diversification. Global private credit assets have surpassed $2 trillion in recent years.[2]
For investors, however, the characteristics that make private credit attractive also create additional considerations.
The additional yield available in private credit is not a guaranteed premium. It represents compensation for accepting risks that investors must understand before allocating capital.
Sukuk vs private credit: what is the core difference?
The key distinction between sukuk and private credit lies in how returns are generated and the risks investors assume.
How do returns and risks compare?
Sukuk and private credit carry different risk and return characteristics, reflecting the different structures behind each asset class.
High-quality sukuk may appeal to investors seeking income with greater emphasis on capital stability and credit quality. However, like all investments, sukuk remain subject to risks, including issuer credit risk, market movements, and changes in liquidity conditions.
Private credit generally offers higher income potential by providing financing to companies that may not access traditional lending channels. This additional return potential compensates investors for accepting greater risks, including borrower credit risk, limited liquidity, and reliance on the manager’s ability to assess and manage investments.
Liquidity is an important consideration when comparing the two. Sukuk may offer greater flexibility through secondary markets, although liquidity varies depending on the issuer, structure, and market conditions. Private credit investments are generally less liquid and require investors to commit capital for a longer period. Aligning the liquidity profile of an investment with the purpose and timeframe of the capital is therefore a key part of portfolio construction.
How can sukuk and private credit fit within a portfolio?
Rather than viewing sukuk and private credit as competing investments, it is more useful to consider the different roles they may play within a diversified portfolio.
Sukuk may serve as part of the defensive income allocation, providing exposure to income-generating assets with greater emphasis on liquidity and issuer credit quality. Private credit may complement this by offering access to alternative sources of income and diversification beyond traditional public markets, while accepting a longer investment horizon and additional risk considerations.
The appropriate balance between the two depends on each family’s objectives, liquidity requirements, investment horizon, risk tolerance, and Shariah considerations. Investors with longer investment horizons and greater tolerance for illiquidity may consider allocating more toward private credit strategies, while those prioritizing liquidity and capital preservation may place greater emphasis on higher-quality sukuk.
There is no universal allocation that applies to every family. The right approach depends on individual circumstances and long-term objectives.
Private credit and Shariah compliance
Sukuk structures are designed around Shariah principles and typically undergo Shariah review and approval. Conventional private credit, when structured as a straightforward interest-bearing loan, does not comply with these principles.
However, private credit can be structured in a Shariah-compliant manner through alternative financing structures. Investors should assess both the investment strategy and the governance framework supporting compliance.
How The Family Office approaches income investing for GCC families
At The Family Office, we believe income strategies should be considered within the context of each family’s broader wealth objectives, rather than evaluated in isolation.
A disciplined approach begins with understanding the purpose of capital, the required liquidity, the investment horizon, and the level of risk each family is comfortable accepting.
Both sukuk and private credit can play a role in income-oriented portfolios, but the appropriate allocation depends on individual circumstances. The objective is to build resilient portfolios designed around long-term wealth preservation, diversification, and sustainable growth.
For eligible investors seeking access to private market opportunities, The Family Office provides access to institutional investment strategies, including direct private market funds, designed to provide exposure to opportunities traditionally accessed by institutional investors.
Where Shariah compliance is required, investment structures are reviewed through appropriate Shariah governance processes to ensure alignment with Islamic principles.
