Difference between revisions of "Islamic Sukuk by Muhammad Faisal Shaikh"

Latest revision as of 04:56, 10 November 2017

Top 20 FREQUENT WORDS

sukuk 165 islamic 80 musharakah 46 ijarah 34 investors 32 sukuks 32 assets 31 asset 30 issuer 28 profit 28 purchase 25 agreement 20 ownership 19 spv 18 abc 17 salam 17 agent 13 issue 13 investment 12 pakistan 12

DOCUMENT KEY POINTS

• if the development of the bond market allows for access to funding with the appropriate maturities thus avoiding the funding mismatches
• if well developed bond markets ensures stable financial system as it minimize over reliance on financing from the banking sector

• earning any kind of profit falls under the category of riba as defined in the hadith every loan that draws any premium is riba
• islamic sukuk introduction if dealing in bonds is not permissible according to shariah because of two aspects

• islamic sukuk introduction if second aspect pertain to the trading of bonds

• if for a defined period the risk and return associated with such assets belong to sukuk holders which makes their return permissible for the holder
• if a sukuk represents proportionate actual or beneficial ownership in an asset or a pool of identified assets

• islamic sukuk introduction if trade of such sukuks is permissible because it will be equivalent to the sale purchase of holder s proportionate share in the assets
• if however trading of murabahah and salam sukuks is not permissible

• islamic sukuk difference with bonds sukuks conventional bond if represents the direct pro if the bond stands for a loan rata ownership of the holder repayable to the holder in in the assets of the pool
• if sukuk holder generally earn return from income generated through the asset

• source dr zeti akhtar if although the size of the market may seem modest by aziz governor bank negara global standards the sukuk market has been registering malaysia sukuk an average growth of per annum
• islamic sukuk international overview if today the global sukuk market denominated in international currencies is estimated to be billion

• source dr zeti akhtar aziz governor bank negara if the middle east and in asia two of the fastest malaysia sukuk growing regions in the global economy are expected to summit london khaleej spend billion and trillion respectively on times june infrastructure over the next five years a islamic capital market in particular the sukuk market will serve as an important avenue to meet these funding requirements
• asia has a savings rate which is higher than any other region in the world and is expected to remain between and per cent of gdp for many years to come

• if market is growing at a very healthy rate as large corporates and conglomerates such as wapda engro chemicals pel eden developers maple leaf cement etc are using sukuk to fund their requirements
• islamic sukuklocal overview if in pakistan the first islamic sukuk was issued in when sitara chemicals industries issued its mtfc

• islamic sukuk types if the issuance of sukuk requires an exchange of a shariah compliant underlying asset for a financial consideration through the application of various islamic commercial contracts such as the mudarabah musharakah ijarah istisna salam and murabahah
• if the equity based nature of mudarabah and musharakah sukuk exposes investors to the risks connected with the performance of the project for which the financing is raised

• if issuing certificates of ownership of assets leased to a particular customer is known as sukuk al ijarah or simply ijarah sukuk

• if after collection of funds from the investors the company either purchases the asset on behalf of the sukuk investors or transfers the ownership of the already acquired asset to sukuk holders usually by establishing a special purpose vehicle spv which owns the underlying assets
• million for the purchase of land real asset equipment etc it can issue ijarah sukuk equaling that amount in small denominations say rs

• the asset is then leased to the firm and the lease proceeds from the asset is distributed to the sukuk holders as return dividend
• islamic sukuk sukuk al ijarah if the investor or sukuk holders owns the asset held by spv as trustee in the form of sukuk

• if since the yield is predetermined and the underlying assets are not liquid but tangible and secured thus the ijarah certificate can be freely traded in the secondary markets at par premium or discount
• islamic sukuk sukuk al ijarah if ijarah sukuk can be issued through a financial intermediary a bank or a brokerage house or directly by the users of the lease asset

• wishes to purchase a new asset and plan to raise finance through issuance of islamic sukuk
• corporate abc ltd

• supplier supplier of the asset is identified and negotiations is finalized by abc ltd
• abc ltd

• supplier issuer spv llc owned abc ltd
• as a limited liability company

• supplier issuer payment made to supplier spv sukuks title is llc transferred to spv investors owned abc ltd
• proceeds spv issues certificates and receives proceeds which are used to purchase asset from the supplier

• as per rules of ijarah spv holds plant asset as trustee issuer spv investor abc spv leases ltd
• spv holds asset as trustee and leases the plant to abc ltd

• lessee pays periodic rentals to spv for tenors amounts matching the coupon tenor of the sukuks
• issuer investors lessee spv periodic lease rentals semi annual coupon distribution amounts abc ltd

• issuer investors lessee spv pays the exercise redeems the trust price at dissolution certificates at dissolution a cabc ltd lessee give the spv an irrevocable purchase undertaking to purchase the asset at maturity
• a casset is transferred back on maturity upon payment of the exercise price to the spv sukuk holders

• if as owner the holder will have the right to enjoy a part of the rent according to his proportion of ownership in the asset
• islamic sukuk sukuk al ijarah important conditions if ijarah sukuk represents the holder s proportionate ownership in the leased asset

• islamic sukuk sukuk al ijarah important conditions if in the case of total destruction of the asset holder will suffer the loss to the extent of his ownership
• if spv rules in pakistan does not allow spv to hold actual tangible assets therefore the asset is shown on the books of the client itself instead of spv

• islamic sukuk sukuk al ijarah innovation in pakistan if there are two basic differences in diminishing musharakah sukuks if underlying assets is jointly owned by investors and issuer according to specified percentage
• if ijarah is essential part of a diminshing musharakah transaction under shirkatul milk

• islamic sukuk sukuk al ijarah documentation documents executed in a sukuk issue based on diminishing musharakah under shirkat ul milk arrangement are
• undertaking to purchase sukuk units

• investment agency agreement through this agreement all participating islamic financial institutions investors appoint a bank fi as investment agent to carry out all actions including entering into all sukuk related transaction documents for and on behalf of all investors in respect of sukuk issue
• islamic sukuk sukuk al ijarah

• asset purchase agreement investment agent acting for and on behalf of investors buys undivided beneficial ownership in specified fixed assets musharakah assets in partnership with issuer at a pre agreed price equivalent to the sukuk issue amount via the asset purchase agreement
• legal title of the assets remains with the issuer and only the beneficial title will remain with the investors

• slb cases are done only after approval of shariah adviser and are undertaken mainly to settle existing conventional banking loans of issuer
• asset purchase agreement musharakah assets can be i already existing and owned by the issuer

• musharakah agreement investment agent acting for and on behalf of investors and issuer will enter into a musharakah agreement to jointly own musharaka assets

• service agency agreement issuer is appointed service agent via signing of service agency agreement between investment agent acting for and on behalf of investors and issuer
• service agent will be responsible for i ensuring all major maintenance of the musharakah assets

• such ownership related expenses taxes incurred by service agent on behalf of musharakah co owners will be reimbursable from investment agent
• service agency agreement ii paying ownership related expenses and taxes and iii arranging takaful insurance of the musharakah assets

• payment agreement investment agent acting for and on behalf of investors will allow issuer to use investors share of the musharakah assets against periodical kibor benchmarked rental payments in terms of the payment agreement
• the tenor of the payment agreement will be matched with the musharakah tenor

• undertaking to purchase sukuk units undertaking to purchase sukuk units is a promise undertaken by issuer in favor of the investment agent for i the periodical purchase of sukuk units representing investors undivided beneficial ownership in the musharakah assets and ii the purchase of all outstanding investors sukuk units in case of an event of default
• islamic sukuk sukuk al ijarah

• undertaking to sell sukuk units undertaking to sell sukuk units is a promise undertaken by the investment agent in favor of issuer granting a call option to issuer to purchase all or part of the sukuk units
• in slb cases purchase sale of sukuk units will only start after at least one year from the musharakah commencement date asset purchase date

• trust deed trust deed will be executed between trustee appointed by investors for the sukuk issue and issuer detailing the responsibilities of the trustee during the tenor of the sukuk issue
• islamic sukuk sukuk al ijarah

• letter of hypothecation other security documents letter of hypothecation and other related security documents will be executed by issuer in favor of trustee for security purposes
• islamic sukuk sukuk al ijarah

• under a salam transaction the seller makes an advance payment for goods which are to be delivered later provided the goods are defined and the date of delivery is fixed if government of bahrain first issued salam sukuks as an alternate to short term government treasury bill
• islamic sukuk sukuk al salam if salam is an islamic mode of finance

• if upon delivery of aluminum ingots to the investors at the time of completion of salam contract government sold ingots to third parties as agent of the investors
• islamic sukuk sukuk al salam if under the transaction government took an advance payment from the investors for a future delivery of aluminum ingots

• islamic sukuk sukuk al salam if on the same lines government of pakistan can also issue salam sukuks to cater to the short term liquidity management issues of islamic banks
• if a proposed structure is discussed next

• if in this transaction various banks may participate in the sukuk and one bank would act as trustee nominated to represent other banks wishing to participate in the al salam contract
• of pakistan zarai taraqiati bank limited ztbl may sell the commodity to the buyers on salam basis which in this case would be islamic banks

• if simultaneously a third party such as passco may provide an undertaking to the trustee to purchase wheat at an specified higher price thus ensuring profit of the investor banks
• islamic sukuk sukuk al salam if as consideration for advance payment ztbl will undertake to supply a specified amount of a commodity say wheat at a future date

• if after taking delivery its premises passco will inform the trustee which would sell the wheat to passco
• islamic sukuk sukuk al salam if upon delivery trustee would appoint passco its agent to take delivery from ztbl

• islamic sukuk sukuk al salam important conditions if salam sukuk represent investors shares in the advance price paid to the seller
• if since its a dayn it cannot be traded in the secondary market

• if the asset would be purchased from its supplier and would be immediately sold to the issuer against deferred price
• islamic sukuk sukuk al murabahah if sukuks can also be issued against a murabahah transaction

• if if a comapany required financing for any of its project through musharakah it can issue sukuks against which investors would provide funding as per the rules of musharakah
• islamic sukuk sukuk al musharakah if musharakah is a mode of financing against which sukuks can be issued

• if once the majority of the cash amount is converted into fixed assets these musharakah sukuk can be treated as negotiable instruments in the secondary market
• islamic sukuk sukuk al musharakah if every sukuk would represent holder s proportionate ownership in the assets of the musharakah

• islamic sukuk sukuk al musharakah important conditions if profit earned by the musharakah is shared according to an agreed ratio between the issuer and investors at an agreed ratio
• if profit loss is shared between the investors as per investment ratio only

• islamic sukuk sukuk al musharakah important conditions if to ensure tradability of the sukuks following condition should be adhered to if all the assets of the musharakah should not be in liquid form
• if at least of the value of portfolio should be invested in non liquid assets

• islamic sukuk sukuk al musharakah if musharakah sukuks can be used for number of purposes including if construction of projects and factories if expansion projects if working capital finance if sitara s musharakah s tfc advised and arranged by meezan bank ltd
• is an excellent example of a musharakah sukuks

• islamic sukuk sukuk al musharakah sitara chemical industries limited if incorporated in year listed on all stock exchanges in pakistan
• if the company s core business is manufacturing of caustic soda largest producer of caustic soda in pakistan

• million if tenor years aggregate if profit payment six monthly based on profit and loss sharing on the operating profits of the chemicals division
• islamic sukuk sukuk al musharakah if issuer sitara chemical ind

• islamic sukuk sukuk al musharakah profit loss sharing if profit was linked to the operating profit of the chemical division
• million then actual profit entitlement rate actual operating profit rs

• islamic sukuk sukuk al musharakah profit loss sharing level ii profit if p

• islamic sukuk sukuk al musharakah profit loss sharingtakaful reserves if the company formed and maintains takaful reserve during the tenor of the tfcs to mitigate the risk of loss for the tfc holders
• if tfc holders also contributed th of their level ii profit to takaful reserve annually during the tenor of the tfcs

• if in case of no losses during tfcs tenor the amount contributed by the company and tfc holders will be paid on final settlement
• islamic sukuk sukuk al musharakah profit loss sharingtakaful reserves if the company transfered rs mm in the reserve

• islamic sukuk other types if sukuks are also issued under other islamic mode of finance and currently much focus is given sukuk al intefah which is transfer of usufruct instead of ownership of the asset
• if other types include sukuk al muzar a sharecropping sukuk al musaqa irrigation sukuk al mugharasa agricultural etc

• islamic sukuk other types if sukuks are also issued under hybird structures where number of islamic modes of finance are used to issue a single sukuk
• if under these structures each of islamic mode is applied at different intervals to cater to different requirements of the issuer

• for this reason assets cannot be carved out from the balance sheet of the issuer which creates complexities in identification of the assets and only a hypothecation charge ensures bank s benefical ownership in the musharakah assets
• if many times these closeness is created to adhere to the tax and other regulatary laws of the country

• islamic sukuk criticism if similarly concept of the diminishing musharakah financing is not there in the stamp duty laws of pakistan which compels banks to sell share in assets without any legal registration
• if nevertheless not all of this criticism is incorrect and therefore it should be ensured that unesseccary usage of artificial structures should be avoided as much as possible

• islamic sukuk benefits if sukuk can be used very effectively as a halal alternate to conventional bonds for provding funding for matching maturities and without relying too much on commerical banking sector
• if another aspect of sukuks which make them more effective than bonds is there ability to mobilize and motivate investors to work for the overall benefit of the issuer

• if effective usage of such sukus would increase the ratio of success and ratio of sustainbility of the projects by many folds
• islamic sukuk benefits sukuks for government projects if sukuks based on ijarah can be used very effectively to finance government projects

• if sense of ownership and share in the profit of the company can be used as a marketing tool for the products of the company especially in fmcg sector
• islamic sukuk benefits sukuks by private sector if corporate sector can also benefit from unique characteristic of sukuks

• if even sukuks al ijarah would help the companies to position themselves as an caring member of the society by involving community in the business of the company
• islamic sukuk benefits sukuks by private sector if the more company earns the more return investor would get concept can revolutionalize sales

• if issuers can also benefit from the huge increase in liquidity in the islamic world and can tap on these new sources of funds
• islamic sukuk conclusion if sukuks can be used very effectively to obtain shariah compliant funding which surely bring allah s blessing and barakah for the business

Please note, This is an auto generated summary based on sentances position in the document and other factors

DOCUMENT WORD ANALYSIS

Main Category

AlHuda Material\sukuk islamic

KeyWords

sukuk islam asset finance issu certifi financi contract bankable bond ijarah leas structur profit holder rate developed purchase risk investor

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DOCUMENT REFERENCES

Number of Pages

79

Published Date

2016-09-17 00:54:48

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