Sukuks Deveolpment and Challenges by Ijlal Alvi

Top 20 FREQUENT WORDS

sukuk 51 assets 17 securitization 16 funds 15 shariah 14 islamic 13 salam 13 ijarah 12 based 11 murabaha 11 return 10 asset 9 banks 9 issued 9 mudarabah 9 credit 8 fixed 8 ownership 8 stocks 8 trading 8

DOCUMENT KEY POINTS

• a c it is not permitted to sell the shares that the seller does not own which is called short sale
• shariah related issues in stocks trading a c not permitted to purchase shares by raising interest bearing loans through a broker or someone else

• issues in stocks trading contd a c not permitted to conclude futures contract for shares because according to shariah only one thing either payment or delivery can be deferred
• a c the contract of salam is not permissible in shares a identified ite miss

• these are certificates of equal redeemable value representing undivided share in ownership of tangible assets of particular projects or specific investment activity usufruct and services
• sukuk a c sukuk refer to securitization a process in which ownership of the underlying assets is transferred to a large number of investors

• securitization involves a c evaluating specific risks a c isolating and efficiently allocating risks a c evaluating the taxation accounting and legal implications within the regulatory framework a c designing appropriate credit enhancement structures e
• over collateral cash collateral subordination etc

• sukuk a guiding principles a c islamic certificates of investment referred to as sukuk involve structuring of pools of shariah compliant assets a c investors have an undivided interest in the underlying assets and are therefore entitled to share jointly the related returns a c could take place through application of various shariah principles such as ijarah salam musharakah mudaraba and mixed pools
• a c provision for credit enhancement and or liquidity enhancement features a c from credit perspective investors expect the sukuk issue to represent the same credit risk as that of the ultimate issuer guarantor

• key players in sukuk market originators a c sukuk originators are mostly governments also corporate firms a c high costs of rating contract documentation investment banking and distribution fee a c sukuk option is not attractive to most islamic banks due to high proportion of short term assets investment banks a c investment banking underwriting lead managing and book making services for sukuk are provided by islamic banks in cooperation with conventional banks having islamic windows
• a c subscribers of these sukuk are mostly central banks private sector islamic banks and nbfis a c tightly held resulting in absence of secondary market a c a wider class of investors essential for active trading

• thus the rates of return on sukuk will be either variable in case the modes on second leg are participatory or quasi fixed in case of modes with fixed return
• a c prospectus to the issue can contain a promise by a third party to donate a specific sum without any counter benefit to meet losses in a given project provided such commitment is independent of the mudarabah contract

• trading a c if the mudaraba capital is still in the form of money the trading of ms would be like exchange of money for money and it must satisfy the rules of bay al sarf
• mudarabah sukuk certificates a c mudarabah certificates or sukuk represent projects or activities managed on mudarabah principle by appointing any of the partners or any other person as mudarib for management of the business

• musharakah sukuk a c musharakah sukuk certificates of equal value issued for mobilizing funds to be used on the basis of partnership so that their holders become owner of the relevant project are almost similar to mudarabah sukuk
• some examples of musharakah sukuk are years tfcs issued by sitara chemical industries a public limited company in pakistan in june and cmcs and gmcs issued in sudan all three have secondary market

• a c as the lessor can stipulate the rentals in advance the rentals on sukuk issue can be indicated in advance with possibility of very small variation that might be possible due to payment of ownership related un predictable expenses by the lessor or possibility of any default by the lessee
• ijarah sukuk a c ijarah sukuk represent ownership of existing or defined and known assets tied up to a lease contract rental of which is the return payable to sukuk holders

• a c payment of rentals can be unrelated to the period of taking usufruct by the lessee ie it can be made before beginning of the lease period during the period or after the period as the parties may mutually decide
• a c rental could be constant increasing or decreasing by benchmarking or relating it to any well known variable like inflation rate any periodically announced price index or otherwise by any settled percentage subject to a proper floor and cap

• a c full ownership of the constructed item is immediately transferred to the purchaser against the deferred sale price that covers not only the construction costs but also profits which could legitimately include inter alia the cost of tying funds for the duration of the repayment period
• by way of parallel istisna contract with subcontractors islamic banks can undertake the construction of any asset and its sale for a deferred price and sub contract the actual construction to any specialized firm

• it needs sound analysis of reselling goods purchased under salam before taking possession by the original buyer in the situation wherein he maintains inventory of that kind of goods in which case banks would be selling those goods out of the stock maintained by them without specifying any units of the goods
• salam sukuk a c salam sukuk being issued in bahrain and used for slr a c salam sale is attractive to the seller whose cash flow is enhanced in advance and to the buyer as the salam price is normally lower than the prevailing spot price giving him a profit margin

• any a murabaha funds can also issue murabaha sukuk proceeds of which could be used for sale of assets on the basis of murabaha to give quasi fixed return to the murabaha sukuk holders
• in case the government needs items of huge price it may purchase them through credit sale by paying in installments

• idb s solidarity trust sukuk for us million issued in and recently issued medium term notes based on mixed portfolio comprising assets leased by idb and installment payments under murabaha and istisna contracts which the idb had entered into with its clients
• mixed portfolio securities sukuk a c banks may securitize a pool of musharakah ijarah and some murabaha salam istisna and joa alah contracts

• controversial bases for sukuk issue a c sukuk are also issued on the basis of bai al inah of underlying asset and the concept of tabarrue while their trading in secondary market takes place through bai al dayn
• however sukuk based on the principles of bai al inah and bai al dayn are not acceptable to mainstream juristic opinion and majority of shariah experts

• investment murabaha funds a c involve purchase of commodities from third parties through a bank as an agent of the fund and reselling the same to the bank on deferred basis a c profit between the bank and the fund is comparable to returns from money market instruments
• for trading of mixed funds the tangible assets should be more than while the liquid assets and debts less than percent

• conclusion findings a c a variety of target specific sukuk can be issued return on which will be either variable or quasi fixed not absolutely fixed as the spvs or the fund managers have to bear the ownership related expenses risks and distribute the net proceeds from the businesses among the sukuk holders
• however there is provision of any rd party guarantee

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 issu secur debt malaysia investor issuanc islam bond issuer corporate billion governance malaysian rate structur bankable institut developed convention

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DOCUMENT REFERENCES

Number of Pages

36

Published Date

2016-09-17 00:55:43

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