The sukuk, which are being developed with the Malaysian unit of Saudi Arabia's Al-Rajhi Bank, will be structured to enable Middle Eastern investors to trade the paper in secondary markets, Cagamas chief executive Steven Choy told Reuters in an interview.

The scheme would raise 5-10 billion ringgit, he said.

"This particular sukuk is meant to widen the (investor) base in the sense that more Islamic institutions in the Middle East can subscribe to it," Choy said.

"Middle Eastern investors are more discerning in terms of the Shariah principles that they adhere to therefore the current sukuk that we issue may not appeal to them."

He said the sukuk would be structured to ensure that underlying assets exist to support the paper throughout the duration of the program, which would satisfy Middle Eastern Islamic law, or Shariah, requirements on secondary trading.

Secondary sukuk trading is a contentious point within the $1 trillion Islamic finance industry, with religious scholars divided on whether debt can be sold to a party other than the creditor.

The Hanafi school of thought does not allow debt to be sold to third parties, but some schools sanction it under certain conditions, including that the price must be paid on the spot and that the sale must not lead to interest.

Varying interpretations of the Shariah have helped to fuel the Islamic finance industry's 20 percent annual growth, as scholars and bankers craft instruments from profit rate swaps to hedge funds to cater to different markets.

But different readings of Islamic law can pose a challenge to the cross-border expansion of Shariah financial institutions as products approved in one jurisdiction can be rejected in another.

Choy said Cagamas's ringgit-denominated sukuk program could be for 10-20 years and it would be launched next month. Mortgages and car financing would probably be the underlying assets for the issue, he said.

Al Rajhi will take up a substantial portion of the issue, he said.

The global sukuk pipeline has shown possible signs of recovery after being hit by Dubai's debt restructuring and several high-profile defaults.

Malaysia last week started a roadshow to sell its first global sukuk in eight years. Earlier this month state-controlled Saudi Electricity Co. raised 7 billion riyals from 7-year sukuk, at 95 basis points above Saudi Interbank Offered Rate (Sibor).