Global Sukuk

Report
Islamic Research and Training Institute, a
Member of IDB Group
Dr. Abd elrahman Elzahi Saaid Ali
Economist
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Since the end of the last century, Islamic finance has become a
continuing growing industry.
The market consensus is that Islamic finance has a bright
future, owing to:
 Favorable demographics and
 Rising incomes in Muslim communities
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Leading banks are buying sukuk and forming subsidiaries
specifically to conduct Islamic finance
Laws have been enacted in non-Muslim financial centers
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Generally, Sukuk are asset-backed, stable income, tradable
and Shari’ah compatible trust certificates.
The primary condition of issuance of Sukuk is the existence
of assets on the balance sheet of the entity which wants to
mobilize the financial resources.
The identification of suitable assets is the first step in the
process of issuing Sukuk certificates.
Shari’ah considerations dictate that the pool of assets should
not solely be comprised of debts
The proper classification of the assets classes will determine the certificates issued
Diversified and Mixed assets
• Hybrid Sukuk
Trade used in Structuring
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Murabahah Sukuk
Mudarabah Sukuk
Musharakah Sukuk
Ijarah Sukuk
Salam Sukuk
Istisna’a Sukuk
Types of sukuk
Modes of Financing
• Tradable Sukuk
• Non-tradable Sukuk
The seller of
Murabahah
commodity
Issuer--Murabahah Sukuk --Subscribers
The buyer of
Murabahah
commodity
The ownership of debt arising from an
Istisna’ and/or Murabaha financing.
These certificates are not tradable .
Entitle the final sale price upon
the re-sale of the commodity
Murabahah cannot legally traded at the secondary market!
Mudarib
No guarantee
For the funds?
capital or profit
Its an investment sukuk /common ownership
Issuer---Mudarabah Sukuk ---Holders
Rabb al-mal
•Suppliers of
capital
•Owns shares
in MD equity
•transfer the
ownership
Certificates of permanent ownership in a company and businesses without
control and management rights
holders of sukuk :
Issuer--- Musharakah Sukuk ---Holders
Committee
• Shared investment decisions
•
investment sukuk ownership of MSH. equity
•Certificates of permanent ownership in a company and businesses with control and
management rights
•SPV can purchased or construct Musharakah Assets or construct by the issuing
entity
• MSH. Sukuk are negotiable instruments that can be bought and sold in the
secondary MRTS.
Right to :
Issuer---- Ijarah Sukuk ---Holders
Ijarah sukuk ownership of equal shares RS or UF.
Own the real estate
• Receive the rent
• Trade their sukuk
•
In exchange:
•Bear the cost of
maintenance
Ownership of durable assets given on rent and/or ownership of usufructs
of durable assets
These certificates are issued on stand-alone assets identified on the balance sheet
The rental rates of return can be fixed or floating in Ijara certificates .
The issuer is the
seller of Salam goods
issuer---- Salam Sukuk
---holders
Sukuk of equal value for mobilizing S. Capital
The holders are the buyer
of the goods
They are entitle to:
• Sale the price of the certificates
• Or sale price of the Salam goods
•In salam, funds are paid in advance and the commodity becomes debt. It can also be in
the form of certificates representing the debt. These certificates are non-tradable.
•Investors pay in advance funds to the SPV in return for a promise to deliver a
commodity in Future.
The issuers Manufacturers
The subscribers are the buyers
Of the intended products
Issuer---- Istisna’a ---Holders
Owned the products
Certificates of equal value issued to mobilized
fund for production of goods products
The ownership of debt arising from an Istisna’
•The funds realized from the subscription are the cost of the product
•Shari'ah prohibit these sukuk certificates to be traded in the secondary markets
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The underlying pool of assets can comprise
of Istisna’, Murabahah receivables as well as
Ijarah
However, still at least 51 percent of the pool
must comprise of Ijarah assets
having a portfolio of assets comprising of
different classes allows for a greater
mobilization of funds
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The development Islamic financial
Institutions
The need for capital market instruments
The legitimization of the concepts of
sukuk in 1988
Why sukuk are important?
Islamic Issuers and Investors and
conventional securities.
Pioneer Sukuk Issuers: Malaysian, Shell (1990), Sudan Government
(2000)
Sukuk become global from 2001:
• USA issued Sukuk al Ijarah of US 100 Million (5 year tenor)
• Central Bank of Bahrain issued Sukuk Al Salam
• After that Sukuk issued in various jurisdictions:
• Malaysia, UAE, KSA, Indonesia, Qatar, Pakistan; bruin, Singapore, Kuwait.
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November 2011 witnessed a record number of
sukuk issues totaling USD 8.86 billion globally
a global level
corporate level
Major announcements of new sukuk
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2011 is the best year in terms of sukuk issuance, with USD 79.5 billion
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The global sukuk market has reached a record level of USD 180 billion.
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Market dominated by sovereign issuers and financial institutions
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The sukuk industry benefited from the Eurozone debt crisis.
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More conventional issuers will join the club of sukuk issuers.
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Standardization of the rules governing the structures and the market.
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The industry continues to suffer from the effects of double taxation
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Many countries are opening up Islamic banking on their territories
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Short-term sukuk issue is on the rise.
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New structures, such as Wakala
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Islamic Interbank Benchmark Rate
Islamic Benchmark for Pricing Credit
Instruments
Thanks

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