Islamic Capital Market

ICM03-The Sukuk Market

Khairuddin Zakaria
B.Sc.Eng, MBA, CIFP, RFP
Outline
Overview
Securitisation and Islamic securities
Distinctions between sukuk and bond
Regulatory framework governing sukuk
Sukuk issuance
Issues and criticisms
Overview on Sukuk Market
Overview: Sukuk as a Sub-Component
Securitisation and Islamic Securities
(Sukuk)
Securitisation
a process of transforming an otherwise illiquid
asset into a liquid one
the process of packaging financial promises and
transforming them into a form whereby they can
be freely transferred among a multitude of
investors
Benefits
Originator has direct access to capital market
Investors have access to secondary market to
liquidate their positions
Securitisation and Islamic Securities
(Sukuk)
One of the Arabic equivalent term to
securitisation is taskik
Literally refers to the process of dividing assets
into papers/certificates (sukuk)
Technically refers to securitisation of assets with
the features of liquidity and tradibility
Generally, sukuk is Islamic security and can
either be:
Debt (the assets are debts)
Equity (the assets are non-debts)
Distinctions between sukuk and bond
Bonds are interest-bearing securities arising out of the securitisation of loan contracts
(issuers are the borrowers)
In sukuk, the issuer is not a borrower but can either be:
A buyer in a sale contract
A lessee in a lease contract
A partner in a partnership contract
Sukuk are representations of ownership claims in
a pool of assets or
rights to receivables
A comparison between bond and sukuk
Distinctions between sukuk and bond
Regulatory framework governing
sukuk
In Malaysia, the issuance of sukuk would require:
the approval of the Securities Commission Malaysia (SC) under section
212 of the Capital Markets and Services Act 2008 and in this regard,
such issuance must comply with the Guidelines on the Offering of
Islamic Securities (Guidelines).
In addition, the structure of Sukuk must be confirmed and
approved by a Shariah adviser approved by the SC
As a guide, the SC Shariah Advisory Council, which is responsible:
for advising the SC on all matters, related to the comprehensive
development of the Islamic capital market in Malaysia,
and functions as a reference centre for all Islamic capital market issues,
has outlined several Shariah principles that could be adopted in the
structuring and issuance of sukuk.
Regulatory framework governing
sukuk
Shariah Compliance: Main Principles
Sukuk Issues
Bai Inah in sukuk structure
Approved in Malaysia but not in most other
countries and AAOIFI
Bai al Dayn
Approved by SAC of Malaysia but not AAOIFI
Naming of sukuk structure
Sukuk issuance can involves several contracts
but which one should be used as the sukuk
name
Summary of AAOIFI Sukuk Criticisms
The End
God Knows Best
Thank You