Sukuk by Hamad Rasool

Top 20 FREQUENT WORDS

sukuk 186 islamic 84 shariah 74 assets 63 financial 40 finance 37 investors 37 aaoifi 35 manager 33 asset 29 holders 27 issue 24 investment 22 based 21 sale 21 published 20 debt 19 news 19 ownership 19 principles 19

DOCUMENT KEY POINTS

the aaoifi defines sukuk as a certificates of equal value representing after closing subscription receipt of the value of the certificates and putting it to use as planned common title to shares and rights in tangible assets usufructs and services or equity of a given project or equity of a special investment activity
in the early days sukuk were basic contracts of sale premised on cost plus sale or cost plus production agreements but now there has been a shift away from debt based sukuk towards lease and partnership based sukuk

it is permissible however to agree to purchase the assets for their net value or market value or fair market value or for a price agreed to at the time of their purchase in accordance with shariah rules of partnership and modern partnerships and on the subject of guarantees
in order to effect an actual transfer of assets the shariah board of aaoifi further ruled that the manager issuing sukuk must certify the transfer of ownership of such assets in its books and must not keep them as his own assets

following such ruling it would mean that in the case of ijarah sukuk for example it is essential that the ijarah certificates are designed to represent real ownership of the leased assets and not only a right to receive the rent
moody s investors services was voted best islamic rating agency ie best rating agency for islamic finance ratings by the readers of islamic finance news in the publication s award poll

following the sub prime crisis in the united states of america us which burst into a full blown financial crisis affecting the rest of the world in the risk of defaults is just unfolding and it is believed that investors and market players will become more aware of the issue of credit risks attached to sukuk

as such in order to fully implement the suggestions by aaoifi it is essential to have the full support and cooperation from the respective governments to introduce specific laws or amendments to existing legislation so as to avoid any possible conflict with the existing laws and regulations in the operation of sukuk

on appeal the court of appeal said that the statement as to the governing law was intended simply to reflect the islamic religious principles according to which the bank holds itself out as doing business rather than a system of law intended to a trump the application of english law as the law to be applied in ascertaining the liability of the parties under the terms of the agreementa
although disputes in relation to islamic banking and financial transactions in malaysia fall within the jurisdiction of civil courts a muamalat division has been established within the high court in with a designated judge to hear islamic banking and takaful cases

there is usually a clause in the relevant contract stating that if the actual profits from the enterprise exceed the percentage based on interest rates the entire excess amount shall be paid to the manager whether a the said bill is pending the royal assent and will come into operation upon notification in the gazette
prohibition of selling of receivables or debts the second point raised by aaoifi was that sukuk must not represent receivables or debts except in the case of a trading or financial entity selling all its assets or a portfolio with a standing financial obligation in which some debts incidental to physical assets or usufruct were included unintentionally

with regard to the stipulation of an incentive for the manager if the fees of the manager is not specified in the contract save for the incentive such arrangement is considered as makruh undesirable by the majority jurists other than hanbali scholars as it will lead to uncertainty
if the actual profits are less than the prescribed percentage based on interest rates the manager may take it upon himself to pay out the difference to sukuk holders as an interest free loan to them

b where the manager acts as a sharik partner in the case where the manager acts as a partner of the sukuk holders it is also unlawful for him to guarantee the return of capital to the sukuk holders as it would interrupt the partnership in the event of losses in the sharing of profits
whilst it is not permissible for a partner to issue a binding promise to purchase the assets at face value as it amounts to a capital guarantee it is lawful for him to promise to purchase the assets of the partnership during the period of partnership or at the time of dissolution at market value or at an agreed price at the time of purchase

in this relation the shariah supervisory boards have given permission to the islamic banks to introduce shariah compliant products to the investors with the hope that the banks will gradually distance themselves from interest based enterprises thereby creating a shariah compliant investment environment for the investors
c where the manager acts as a wakil investment agent in the case where the manager acts as an investment agent it is also unlawful for him to make such a commitment because agency or wakalah is a contract of trust and there can be no guarantees except in cases of negligence or mala fides

the lack of active trading at the secondary market is also due to the limited number of issuances and the lack of alternative instruments in this asset class
high costs of financing sukuk are extremely difficult instrument to structure as they require extensive and costly legal and religious advice and a lot of different skills and resources to make it work

some jurists have disallowed the practice of sale of debt between the creditor and a third party contenting that there is uncertainty gharar in the ability of the seller to deliver the subject matter of the contract
as such in order for sukuk to achieve their macroeconomic and microeconomic benefits it is important that asset securitization sukuk be issued and traded on a large scale basis

conclusion and the way forward as seen above the problems faced by the sukuk industry include the legal constraints under the existing legal framework of certain jurisdictions the issue of enforceability of the contracts cross boarder issues the lack of well structured and well regulated secondary market for sukuk etc

moving forward market participants should be wary of the following a sukuk holders must have complete ownership in the real assets throughout the tenure which is evidenced by proper book entries and the relevant quoted by blake goud executive director of institute of halal investing portland the us in ifn forum a shariah scholars claim that standardization would limit the diversity in islamic banking products hence challenging the islamic concept of ijtihad reasoning

if there is to be an incentive for the manager it should be based on the profits expected from the enterprise and not on the basis of an interest rate c if actual profits are less than expected it is unlawful for the manager to offer a loan to sukuk investors d it is unlawful for sukuk manager to furnish an undertaking to repurchase the assets at face value

table a moody s sukuk ratings secured sukuk asset backed country issuer originator name amount issue rating usd mm uae tamweel sukuk ltd
qatar real estate a investment co total amount of issuance rated by moody s usd mm actual issuance in aed usd equivalent listed source the future of sukuk substance over form understanding islamic securitisation assetbacked and aaoifi principles moody s investors service may

asian sukuk market faces new but familiar challenges by islamic finance news published in islamic finance news vol
khalid howladar the future of sukuk substance over form understanding islamic securitisation asset backed and aaoifi principles moody s investors service may

sukuk comes of age in infrastructure and project finance part ii by standard poor s published in islamic finance news vol
sukuk market a down but not out final part by global investment house published in islamic finance news vol

sukuk rating general approach criteria and methodology by ram ratings published in islamic finance news vol
sukuk strikes the right chord published in islamic finance asia august september

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DOCUMENT WORD ANALYSIS

Main Category

AlHuda Material\sukuk islamic

KeyWords

reit estate invest tax trust NA account incom NA finance boardwalk manage rental busi pakistan limit leas properties NA distributable

DOCUMENT REFERENCES

Number of Pages

20

Published Date

2009-10-08 14:53:22

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Sukuk by Hamad Rasool

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Top 20 FREQUENT WORDS

DOCUMENT KEY POINTS

DOCUMENT WORD ANALYSIS

Main Category

KeyWords

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