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Sukuk investment: Comparison of the profits obtained by using Ijarah and Musharakah

Mutanaqisah principles with long-term tenure

Mariam Jamilah Abdul Jalil Zuriah Abdul Rahman

Article information:

To cite this document:

Mariam Jamilah Abdul Jalil Zuriah Abdul Rahman, (2012),"Sukuk investment", Qualitative Research in

Financial Markets, Vol. 4 Iss 2/3 pp. 206 - 227

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http://dx.doi.org/10.1108/17554171211252538

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Rodney Wilson, (2008),"Innovation in the structuring of Islamic sukuk securities", Humanomics, Vol. 24 Iss

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Asmadi Mohamed Naim, Mohamad Yazid Isa, Mohd Liki Hamid, (2013),"The effects of new AAOIFI

standards on Sukuk in choosing the most authentic Islamic principles", Journal of Islamic Accounting and

Business Research, Vol. 4 Iss 1 pp. 77-93 http://dx.doi.org/10.1108/17590811311314302

Daoud Ben Jedidia Khoutem, (2014),"Islamic banks-Sukuk markets relationships and economic

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Business Research, Vol. 5 Iss 1 pp. 47-60 http://dx.doi.org/10.1108/JIABR-07-2012-0054

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QRFM

4,2/3 Sukuk investment

Comparison of the profits obtained by using

Ijarah and Musharakah Mutanaqisah

206 principles with long-term tenure

Mariam Jamilah Abdul Jalil

Faculty of Information Technology and Quantitative Science,

Universiti Teknologi MARA, Shah Alam, Malaysia, and

Zuriah Abdul Rahman

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Shah Alam, Malaysia

Abstract

Purpose The purpose of this paper is to determine whether the amount of profits gained from

musharakah mutanaqisah model using coupon rate of 4.5 per cent, price at par and tenure of five years

was greater than using ijarah principle where the price is at a discount. Also to compute and compare

the profits obtained from sukuk investment in ijarah and musharakah mutanaqisah for 3.5 per cent

coupon rate and price at par for a sukuk with tenure of 12.5, 15, 17.5 and 19 years.

Design/methodology/approach In total, two models were used to calculate profit. These models

are based on ijarah and musharakah mutanaqisah principles. Formulas are derived from ijarah and

musharakah and mutanaqisah principles used in sukuk.

Findings Sukuk investment using ijarah principle is found to be a better investment alternative

than musharakah mutanaqisah principle, regardless of the number of years of the sukuk, as long as it

is a long-term tenure. However, for short-term tenure, the latter is preferred based on the amount of

profits generated.

Research limitations/implications The formulas and results shown in this research are just one

of the mathematical approaches that can be used for decision making in sukuk investment. There are

other approaches which may deemed to be more effective in decision making. This research was

applied only to ijarah and musharakah mutanaqisah types of investment.

Practical implications The results in the research will assist in making a quick decision on what

type of sukuk investment for the investors and issuers and which will be suitable given the amount of

financial resources and duration of the investment period.

Originality/value Many researchers have attempted to study the implications of using

mathematical formulas to guide decision making on the choice of sukuk investment and this

research has, to a certain extent, concurred with and complemented the works of past researchers.

Additionally it will create awareness and provide more information to potential investors on better

sukuk investment alternative principles from a mathematical point of view.

Keywords Islam, Finance, Investments, Bonds, Profit, Mathematics, Islamic finance, Islamic bonds,

Sukuk, Murabahah, Ijarah, Musharakah mutaniqisah

Paper type Technical paper

Markets 1. Introduction

Vol. 4 No. 2/3, 2012

pp. 206-227 What is a bond? The party that issues the bond is called the issuer and the one that

q Emerald Group Publishing Limited buys the bond is called the investor (Abdul Rahman, 2008). Occasionally a trustee

1755-4179

DOI 10.1108/17554171211252538 which is a special purpose vehicle (SPV) is formed solely for the purpose of managing

the bond issuance (Ayub, 2007). A bond is issued in a form of a certificate with the face Sukuk

value of RM100 and can be sold at par, discount or premium. Some basic features of a investment

bond is the coupon or interest rate; which can be fixed or float and the maturity date;

which can either be long-term, intermediate or short-term (Fabozzi, 2000). According to

Fabozzi (2000), short-term tenure is between one and five years, intermediate term is

between five and 12 years and long-term tenure is more than 12 years. The issuance of

the bonds can be done in any currencies and they are issued mainly for the purpose of 207

getting financial aid to put together certain projects.

In the Malaysian capital market, there are two different types of bond that are being

issued which are conventional bonds and Islamic bonds. Conventional bonds work

similar to that of a loan in the sense that they are mainly just paper that investors pay for

but there are no assets to back the bonds and the investors are not aware of how their

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money is being used. Investing in conventional bonds is solely for the purpose of

accumulating interest and maximizing profit. The accumulation of interest for floating

coupon bond is according to a rate that is influenced by current market rate, length of the

term and the creditworthiness of the issuer. The rate will change overtime; therefore the

market price of a bond will vary after it is first issued (Wilson, 2004).

Muslims in general, are apprehensive about investing in conventional bond due

to many factors that prohibit Muslims to do so. This prohibition includes such things

as interest (riba), uncertainty (gharar) and transactions in unethical goods and

services, making the contract impermissible for Muslims (Tariq, 2004). Since the

Muslim population in Malaysia is more than 50 per cent, then it is important to have a

shariah-compliant investment option to satisfy their business needs. So, with the

availability of the Islamic bonds which bear no interest and backed by assets owned

by the issuers, Muslims are able to invest with a better peace of mind (Wilson, 2004).

Islamic bonds are called sukuk, which is plural for sakk which means certificate (Cakir

and Raei, 2007). There are many concepts used in sukuk such as ijarah, musharakah,

murabahah, bai bithaman ajil (BBA), istisna and mudharabah, where they are created

to be used for different purposes and tenure. The first sukuk issued in Malaysia was in

1990. In 2007, Malaysia was the worlds leading issuer of Islamic bond. In that year alone,

approximately US$62 billion of Islamic bonds were issued. After the introduction of

Islamic bond, even conventional companies started issuing Islamic bond. The worlds

first ringgit sukuk issuance by a conventional company is SHELL MDS which was

issued in 1990 with the total amount of RM125 million. To date, the largest ever sukuk

issuance is by BINARIANG GSM with the amount of RM15.35 billion in the year 2007

(Malaysia International Islamic Financial Centre (MIFC, 2007)).

The issuance of corporate sukuk (by number of volumes) as of 2008 are 55 per cent

for musharakah, 20 per cent for ijarah, 11 per cent for murabahah, 6 per cent for

mudharabah, 5 per cent for istisna and 3 per cent for BBA.

Below are brief descriptions of the three most popular corporate sukuk in Malaysia.

Musharakah

Musharakah means partnership. Usmani (2007) states that the concept of musharakah is

a form of financing where a few partners enter into an agreement to form an enterprise in

which all the partners share the profits or losses derived from the joint venture. Only the

profits gained are distributed among investors based on an agreed profit sharing ratio.

However, if the business suffers a loss, the losses will be borne by all the investors based

QRFM on the ratio that they invest in Tariq (2004). In sukuk, the investors will form an

4,2/3 enterprise and buy the sukuk from the issuers through a trustee. The management of the

business will be done by the issuers and they will be paid a management fee. The profit

obtained from the joint venture will be distributed to the investors through the

trustee. However, if the business suffers a loss, the issuers have to pay back the investors

(Abdul Rahman, 2008). In financing, musharakah mutanaqisah or diminishing

208 musharakah is an improvised model of musharakah currently available in financing

only. The structure of musharakah mutanaqisah is similar to musharakah, but the

periodic payment include the profit plus cost of buying back the asset as opposed to

musharakah where the periodic payment is to pay only for the profit but this payment

will only be made if the business succeed. Upon maturity, the asset will be fully paid and

owned by the customer (Ahamed Kameel and Dzuljastri, 2009).

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Ijarah

Ijarah comes from an Arabic word which means leasing. Usmani (2007) explained that

there are two types of ijarah. The first is to employ the services of a person on wages

given to him as a consideration for his hired services. The second is to transfer the

ownership of a property to another person in exchange for a rent claim by him. Even

though the ownership has changed the person renting the property has the right to use

the property as his own. In sukuk, a trustee acting on behalf of the investors will purchase

a leasable asset from the issuer. The trustee will lease the asset back to the issuer base on

the rental that has been agreed upon by both parties. The issuer will then issue sukuk and

will pay the rental fee for a specific period of time. After reaching the maturity date, the

issuer will purchase the asset back based on what is left after deducting the rental fees

(Abdul Rahman, 2008). Zureena (2008) clarified that this principle provides medium to

long-term type of sukuk.

Murabahah

Murabahah in financing is a price deferred sale of a contract (Tariq, 2004). Usmani (2007)

mentioned that in murabahah, a product is sold based on the total cost plus profit where

they can be paid either a lump sum or according to a percentage agreed upon by buyer

and seller. This concept is used mostly for short-term financing (Abdul Rahman, 2008).

In sukuk, the investors buy the sukuk according to the purchase price agreed upon from

the issuers through a trustee. Then, the trustee will sell back the sukuk to the issuers with

the sale price which are the purchase price plus mark-up to be settled on a deferred

payment basis (Abdul Rahman, 2008).

Buying and selling of bonds is based on demand and supply concept. If there is a

demand in certain sukuk principles than the issuers will supply according to the demand.

Therefore, it is important to provide information about sukuk principles and the

calculation of the profits to investors and issuers so that they can make good decision on

which sukuk principle to invest in.

There are not many studies that have been carried out on the performance of sukuk

let alone on musharakah mutanaqisah principle. However, in finance, a few studies have

been carried out in promoting musharakah mutanaqisah principle. According to

Ahamed Kameel and Dzuljastri (2009), by doing a comparison between the BBA and

musharakah mutanaqisah concept showed that the latter concept is much more suitable

and widely accepted by customers and financiers. Customers are more akin to finance

in musharakah mutanaqisah since the value of an asset is based on the market price and Sukuk

the rental payment is based on the market rental values, these values will change during investment

the duration of the tenure. However, in BBA the value of the asset is fixed throughout the

maturity term and the value is based on the interest. The profit obtained from

musharakah mutanaqisah also varies since the rental payment change over time, unlike

BBA where the profit obtained by the financier is fixed. By using the BBA concept the

amount to be paid to the financier is said to be four times the actual cost, this would end 209

up being a burden to the customers. This showed that musharakah mutanaqisah

concept is a better alternative for financing than BBA (Ahamed Kameel and

Dzuljastri, 2009).

Maheran (2006) studied and modified the formula obtained from Shaharir (1989).

From this study she was able to produce a formula that can be used for financing in

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musharakah mutanaqisah principle. The model obtained from Shaharir (1989) can

actually be used for mudharabah, but Maheran (2006) introduced a new model so that it

can go well with musharakah mutanaqisah principle. There are two profits that will be

obtained by the financier and the entrepreneur by using the musharakah mutanaqisah

principle which are the profits from their investment and the periodic payment.

There are three comparisons that Maheran (2006) used in her studies. The first one

was the comparison between musharakah mutanaqisah model introduced by Shaharir

(1989) and the conventional formula used by banks. She found that the amount of

periodic payment from Shaharir (1989) model was much higher and this would be a

burden to the entrepreneur. The second comparison was between her model and the

model from Shaharir (1989). She discovered that her model gave a lower amount of

periodic payment which reduces the burden on the entrepreneur. The last comparison is

between her model and the conventional model, where the amount of periodic payment

to financier obtained from the new model was also lower than the conventional model.

Hence, she concluded that using musharakah mutanaqisah principle and the new model

is much more reasonable because the profits obtained from the joint venture will benefit

both sides.

Mohd. Noor (2008) adapted the model of musharakah mutanaqisah in financing

introduced by Maheran (2006) into sukuk. He compared the amount of profits obtained

from sukuk investment in musharakah mutanaqisah and BBA and found that

musharakah mutanaqisah gave higher profit. He also concluded that this model is more

beneficial to investors and issuers rather than BBA where it only benefited one party.

Mawarliza (2009) compared the amount of profits obtained from sukuk investment in

ijarah and musharakah mutanaqisah principles. In her study she used the musharakah

mutanaqisah model that was introduced by Maheran (2006) in financing and adapted in

sukuk by Mohd. Noor (2008). The formula for calculating price using ijarah principle was

from Bank Muamalat, Kuala Lumpur. The price was calculated based on the price at

future value and price at present value. From there, the proceeds were determined and

the profit was calculated by taking the difference from the proceeds at future value and

the proceeds at present value. She discovered that the amount of profits gained from

musharakah mutanaqisah model using coupon rate of 4.5 per cent, price at par and

tenure of five years was greater than using ijarah principle where the price is at a

discount.

It would be interesting to see whether the findings of Mawarliza (2009) still hold

for sukuk with long-term tenure, both principles using prices at par, and a 3.5 per cent

QRFM coupon rate. The goal of this research is to compute and compare the profits obtained

4,2/3 from sukuk investment in ijarah and musharakah mutanaqisah for 3.5 per cent coupon

rate and price at par for a sukuk with tenure of 12.5, 15, 17.5 and 19 years. All the data

used in this study is ijarah sukuk issued by Projek Lintasan Shah Alam Sdn. Bhd,

courtesy of RHB Investment Bank Berhad and RHB Islamic Bank Berhad

Kuala Lumpur which are the advisers bank for the issuance of sukuk (Securities

210 Commission Malaysia, 2009). The computation of the profits obtained from ijarah sukuk

investment will be computed according to the amount of profit available in the data.

2. Methodology

In this paper two models were used to calculate profit. These models are based on

ijarah and musharakah mutanaqisah principles.

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2.1.1 Structure of ijarah principle used in sukuk. A trustee (SPV) acting on behalf of the

investors will purchase a leasable asset from the issuer. The trustee will lease the asset

back to the issuer based on the rental that has been agreed upon by both parties. The

issuer will then issue sukuk and will pay the rental fee for a specific period of time.

After reaching the maturity date, the issuer will purchase the asset back based on what

is left after deducting the rental fees (Abdul Rahman, 2008) (Figure 1).

2.1.2 Formula for ijarah principle used in sukuk. Based on the ijarah sukuk data

obtained from RHB headquarters, Kuala Lumpur, the amount of periodic rental

payments due to investors is computed by using the simple interest formula. The

formula for simple interest, I obtained from Kya and Kiang (1996) is as follows:

I Pr t 1

where:

I simple interest.

P principal amount.

r rate of simple interest.

t time (in years).

In order to calculate the accumulated profit earned by investors at the end of tenure, the

future value of an annuity formula will be used to compute the future value of the

rental payments at maturity. In this research we assumed that the profits obtained at

each profit dates are reinvested in a different investment scheme with different profit

rate. The formula to compute the future value of an annuity S is obtained from Kya and

Kiang (1996) as follows:

1 i n 2 1

SR 2

i

Figure 1.

(1) Sells asset and pays rent (2) Issues bond and pays rent

The structure of ijarah

Issuer SPV Investor

principle used in sukuk

(4) Buys asset back (3) Releases bond

where: Sukuk

S future value of annuity at the end of n interest periods. investment

n number of rental payments.

i interest rate per interest period.

R periodic payments. 211

2.2 Musharakah mutanaqisah principle

2.2.1 Structure of musharakah mutanaqisah principle used in finance. According to

Ahamed Kameel and Dzuljastri (2009), this principle works similar to basic

musharakah. First the investors will form a joint venture and invest with the issuer.

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The issuers will issue a bond and manage the asset. There are two concepts used in

musharakah mutanaqisah contract. Since both the investors and issuers provide

capital based on the agreed investment ratio then this is a musharakah contract. But in

diminishing musharakah the issuers will have to pay monthly payment to the

investors which is the rental payment, this is the ijarah contract. Upon maturity the

monthly payment and principal amount of the bond will be fully paid and will

eventually end the contract and the asset will change ownership to the issuer. In this

contract, not only the investors will benefit from the joint venture but the issuers will

also receive monthly payment based on the profit sharing ratio (Figure 2).

2.2.2 Formula for musharakah mutanaqisah principle. This model was introduced

by Maheran (2006) for Islamic financing and adapted in Islamic bonds by Mohd.

Noor (2008).

To obtain profits for investors using this model, several formulas will be used:

(1) The amount of periodic payment, B to investors is:

P 0 k1 rt 2 1 P 0

B 3

t1 2 k k1 rt 2 1=r

where t is the number of periods.

(2) Semi-annual profit for investors, Ct at the end of the tth period:

t21 1 rt21

C t rk P 0 1 r 2 B 21 4

r

(3) Release bond and receive principal and profit

Issuer Investor

(2) Buys bond and receive periodic payment

Figure 2.

(1) Provide capital (1) provide capital The structure of

Joint venture musharakah mutanaqisah

(asset) principle

QRFM (3) Accumulated profit for investors, Ut at the end of tth period:

4,2/3 t 1 rt 2 1

U t k P 0 1 r 2 1 2 B 2t 5

r

where:

212 P0 face value.

k profit sharing ratio.

r profit rate on a single semi-annual payment.

3. Implementation

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Some important information on the sukuk issued by Projek Lintasan Shah Alam Sdn.

Bhd, courtesy of RHB Investment Bank Berhad and RHB Islamic Bank Berhad

Kuala Lumpur which are the advisers bank for the issuance of sukuk (Securities

Commission Malaysia, 2009) are indicated in Table I. According to the information

available in the data, the profit was distributed twice a year where the dates were

already determined which were at 30 April and 31 October of every year from the

issuance date until the maturity date. The price issued was at par and the profit rate

was 3.5 per cent:

.

To calculate the rental payment earned by investors using equation (1):

P RM10; 000; 000:00 r 3:5% t 15

I 10; 000; 0000:03515 RM5; 250; 000

Since the bank will pay the profit twice a year until the maturity date, the

payment that will be obtained by investors at each profit date is computed below:

5; 250; 000

p RM350; 000=year

15

350; 000

q RM175; 000=period

2

In order to compute the future value, we used the periodic rental payment, q as

calculated above and substituted it in R, in equation (2). The interest rate used in

this formula was obtained from RHB Banking Group (2010) web site under

RM115,000,000.00 19

Table I. RM35,000,000.00 17.5

Data description of ijarah RM10,000,000.00 15

sukuk issued by Projek RM5,000,000.00 12.5

Lintasan Shah Alam

Sdn. Bhd Source: RHB Kuala Lumpur

money market rates where the negotiable instrument deposit rate is 2.25 per cent Sukuk

per annum and is assumed to be the same throughout the tenure. The reason this

particular rate was used was because this investment rate contained only one

investment

package compared to all other rates that have lots of different packages to choose

from. We also assumed the profits that are collected twice a year will also be

reinvested twice a year so, the rate will be divided by two.

.

To calculate the future value of annuity earned by investors using equation (2): 213

2:25%

n 30 i 1:125% R RM175; 000

2

1 0:0112530 2 1

S 175; 000 RM6; 203; 576:35

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0:01125

The accumulated profit at the end of 15 years per unit of sukuk is:

6; 203; 576:35

S RM62:04

100; 000

In this section, the computation of rental payment and accumulated profit earned by

investors are only for the tenure of 15 years. The computation of rental payment and

accumulated profit earned by investors for all other tenures is available in Appendix 1.

This principle is still not being used in the sukuk market in Malaysia. In this research,

the formulas were introduced by Maheran (2006) in financing and adapted in sukuk by

Mohd. Noor (2008).

For this principle, a few assumptions were made such as the price was at par, the

tenure was for 12.5, 15, 17.5 and 19 years, profit rate was at 3.5 per cent, the initial

investment and profit sharing ratio was 80:20 where 80 per cent was for investors and

20 per cent was for issuers and the investors will hold the sukuk until the maturity date:

.

To calculate the amount of periodic payment to investors using equation (3):

B

301 2 0:8 0:81 0:03530 2 1=0:035 47:29814182

RM5:1703

consists of the profit earned by investors and the cost of buying back the asset

from the investors.

.

To calculate the semi-annual profit for investors using equation (4) for t 1:

P 0 RM100 k 0:8 r 3:5% t1

QRFM 0 1 0:0351 2 1

C 1 0:0350:8 1001 0:035 2 5:170255891 21

4,2/3 0:035

0:028100 RM2:8

This formula will also be used to calculate the semi-annual profit for investors

214 until the 30th period.

.

To calculate the accumulated profit for investors using equation (5) for t 1:

P 0 RM100 k 0:8 r 3:5% t 1

1 1 0:0351 2 1

U 1 0:8 1001 0:035 2 1 2 5:170255891 21

0:035

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0:028100 RM2:8

This formula will also be used to compute the accumulated profit for investors

until the 30th period.

In this section, the calculations of profit and accumulated profit for musharakah

mutanaqisah sukuk are shown for the tenure of 15 years at the end of the first period

only. The detailed computations of other components needed in the computation of

profit under the same principle for the first period are available in Appendix 3. A more

comprehensive result for the computation of the profits for all tenures is available in

Appendix 4.

The results for the computation of profits obtained from investment in sukuk ijarah

and musharakah mutanaqisah principles were tabulated using Microsoft Excel.

The amount of profit obtained is calculated based on equation (2) using different

tenures which are 12.5, 15, 17.5 and 19 years and the amount presented above is the

total amount based on the total number of sukuk sold. As we can see in Table II, the

profit obtained by investors between 15 and 17.5 years increases by over RM20 million.

The result obtained also suggested that between 17.5 and 19 years the profit increases

by over RM68 million.

The periodic payment and accumulated profit obtained by investors were calculated

based on equations (3) and (5), respectively. This result was obtained based on the price

Tenure Profit

Accumulated profit using 30 6,203,576.35

ijarah principle for 35 26,098,322.92

different tenures 38 94,768,817.17

at par, with 3.5 per cent profit rate and tenure of 12.5, 15, 17.5 and 19 years so that it Sukuk

coincides with the result obtained from using ijarah principle. The profit sharing ratio investment

used for this principle is 80:20 for investors and issuers, respectively. The accumulated

profit obtained by investors indicated that the difference of the profits between the three

earlier tenures is constant at RM11 since the gap of the tenure remains the same which is

2.5 years. However, the accumulated profit obtained between 17.5 and 19 years the

difference is only RM7 since the gap of the tenure is only 1.5 years (Table III). 215

Table IV indicates the amount of accumulated profits per unit of sukuk invested in

ijarah and musyarakah mutanaqisah principles for tenures of 12.5, 15, 17.5 and 19 years.

From Table IV we can see that the profit obtained by investors using ijarah principle

for long-term tenure is higher compared to using musharakah mutanaqisah principle.

Figure 3 shows the comparison of accumulated profit as indicated in Table IV.

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The graph in Figure 3 showed that as the year increases the accumulated profit

obtained by investors will also increase. We can also see that as the tenure gets longer

the difference between the profits using sukuk ijarah and musharakah mutanaqisah

gets bigger. This graph suggested that sukuk investment using ijarah principle is a

better investment alternative than musharakah mutanaqisah principle regardless of

the number of years of the sukuk as long as it is a long-term tenure.

Since this project is a continuation of the study done by Mawarliza (2009) we used

the result obtained in her study which indicated that the graph may intersect after five

years. This intersection was taken into account and we constructed a similar study but

with long-term tenure. The graph from Figure 3 suggested that the results from this

study is compatible with the assumption made that the accumulated profit for sukuk

ijarah is higher than musharakah mutanaqisah.

The objective of this research was to compute and compare the profits obtained from

sukuk investment in ijarah and musharakah mutanaqisah for 3.5 per cent coupon rate

and price at par for a sukuk with tenure of 12.5, 15, 17.5 and 19 years. From Table IV,

it suggested that using ijarah principle with long-term tenure is a better investment

alternative than using musharakah mutanaqisah principle. As shown in Figure 3, the

accumulated profit earned by investors for long-term tenure will keep on increasing

Table III.

25 5.7815 44.5383 Accumulated profit using

30 5.1703 55.1077 musharakah

35 4.7513 66.2941 mutanaqisah principle for

38 4.5603 73.2929 different tenures

Table IV.

25 50.20 44.54 5.66 Accumulated profit for

30 62.04 55.11 6.93 investors using ijarah

35 74.55 66.29 8.26 and musharakah

38 82.41 73.29 9.12 mutanaqisah principles

QRFM 90.00

4,2/3 85.00

80.00

75.00

216 70.00

RM

65.00

60.00

55.00

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50.00

45.00

Figure 3. 40.00

Graph of accumulated 12.5 15 17.5 19 years

profit for ijarah and

musharakah mutanaqisah Ijarah Principle Musharakah

principle Mutanaqisah

Principle

regardless of the number of years the sukuk was issued. The result that was obtained

in this study also showed that the result discovered by Mawarliza (2009) is

complementary to each other.

In conclusion, if the investors are looking for a long-term investment the better

investment alternative is using sukuk issued under the ijarah principle. However, if the

investors are looking to invest in sukuk with short-term tenure a better investment

alternative is using the musharakah mutanaqisah principle as suggested by Mawarliza

(2009). We hope that the results obtained in this research will create awareness and provide

more information to potential investors on a better sukuk investment alternative principle

from a mathematical point of view.

The formulas and results shown in this project are just some of the mathematical

approach that can be used for decision making in sukuk investment. There are many

other studies that can be done to help out investors and also issuers. For future studies,

we recommend comparison between ijarah and musharakah mutanaqisah principles for

sukuk investment using different prices. There are also other principles that can be

ventured in where comparison can be done and try to find the formulas for that particular

principle that are being used in the sukuk market. Besides that, other researchers can also

take into consideration the economic factors that can influence the demand of sukuk.

References

Abdul Rahman, Y. (2008), Islamic Finance, Shariah-Compliant Product & Sukuk, Cagamas Bhd,

Kuala lumpur.

Ahamed Kameel, M. M. and Dzuljastri, A.R. (2009), Home financing through the musharakah

mutanaqisah contract: some practical issues, Journal of King Abdulaziz University:

Islamic Economics, Vol. 22 No. 1, pp. 3-27, available at: http://islamiccenter.kaau.edu.sa/

arabic/Magallah/Pdf/22_1/22-1-A-Meera_06.pdf

Ayub, M. (2007), Securitization, Sukuk, and Fund Management Potential to be Realized by Islamic Sukuk

Financial Institutions, available at: http://islamiccenter.kaau.edu.sa/7iecon/Ahdath/

Con06/_pdf/Vol2/48MuhammadAyubSecuritization,Sukuk.pdf investment

Cakir, S. and Raei, F. (2007), Sukuk vs Eurobonds: is there a difference in value-at-risk,

available at: www.scribd.com/doc/3976253/Sukuk-vs-Eurobonds

Fabozzi, F.J. (2000), The Handbook of Fixed Income Securities, available at: http://books.google.

com.my/books?idjup2d1pEyWcC&pgPA4&lpgPA4&dqmaturitytermin 217

bonds&sourcebl&otswJTSFqp7eR&sigtxZt461lIAQnUrAH42nbGdorlIc&hlen&

eido_nStjgPJeCkAXJs5nFBg&saX&oibook_result&ctresult&resnum7&ved

0CBsQ6AEwBg#vonepage&qmaturity%20term%20in%20bonds&ffalse

Kya, L.T. and Kiang, W.K. (1996), Accountancy Mathematics for ITM, Fajar Bakti Sdn Bhd,

Kuala Lumpur.

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Maheran, M.J. (2006), Model matematik pelaburan musyarakah dan mutanaqisah, doctoral thesis,

Universiti Kebangsaan Malaysia, Bangi.

Mawarliza, M.Z. (2009), Comparison of the profit obtained from investment in sukuk by using

ijarah and musharakah mutanaqisah principles, Bsc Technical Report, Faculty of

Computer and Mathematical Sciences, Universiti Teknologi MARA, Shah Alam.

MIFC (2007), Financial Stability and Payment Systems Report 2007, Bank Negara Malaysia,

available at: www.mifc.com/index.php?chcat_int_sukuk&pgcat_int_sukuk_over&

tptmifc_2008#

Mohd. Noor, M. (2008), Managing Islamic bonds using musharakah mutanaqisah model, Bsc

Technical Report, Faculty of Computer and Mathematical Sciences, Universiti Teknologi

Mara, Shah Alam.

RHB Banking Group (2010), Money market rates, available at: www.rhb.com.my/rate_charges/

money-market/mm_main.html

Securities Commission Malaysia (2009), available at: www.sc.com.my/SC/download1.asp?

docId787&docTypePTC

Shaharir, M.Z. (1989), Pinjaman secara Islam: Satu alternatif, Isu Pengurusan, Vol. 1 No. 1,

pp. 3-11.

Tariq, A.A. (2004), Managing financial risks of sukuk structure, Masters dissertation,

Loughborough University, Loughborough, available at: www.sbp.org.pk/departments/

ibd/sukuk-risks.pdf

Usmani, M.T. (2007), An Introduction to Islamic Finance, Maktaba Maariful Quran, Karachi.

Wilson, R. (2004), Islamic bonds: your guide to issuing, structuring and investing in sukuk

overview of the sukuk market, available at: www.scribd.com/doc/3825436/Overview-of-

the-Sukuk-Market

Zureena, M. (2008), Sukuk A Brief Introduction, Azmi & Associates, Kuala Lumpur, available at:

www.azmilaw.com.my/Article/Article_10_&_11/Article_10_SUKUK_00101904_.pdf

Appendix 1

Below are calculations using ijarah principle for tenure of 12.5 years that are used in this project

but were not shown above:

.

To calculate the rental payment earned by investors using equation (1):

QRFM 2; 187; 500

p RM175; 000=year

12:5

4,2/3

175; 000

q RM87; 500

2

.

To calculate the future value of annuity earned by investors using equation (2):

218 2:25%

n 25 i 1:125% R RM87; 500

2

1 0:0112525 2 1

S 87; 500 RM2; 509; 936:55

0:01125

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The accumulated profit at the end of 12.5 years per unit of sukuk is:

2; 509; 936:55

S RM50:20

50; 000

Below are calculations using ijarah principle for tenure of 17.5 years that are used in this project

but were not shown above:

.

To calculate the rental payment earned by investors using equation (1):

21; 437; 500

p RM1; 225; 000=year

17:5

1; 225; 000

q RM612; 500

2

.

To calculate the future value of annuity earned by investors using equation (2):

2:25%

n 35 i 1:125%R RM612; 500

2

1 0:0112535 2 1

S 612; 500 RM26; 093; 822:92

0:01125

The accumulated profit at the end of 17.5 years per unit of sukuk is:

26; 093; 822:92

S RM74:55

350; 000

Below are calculations using ijarah principle for tenure of 19 years that are used in this project

but were not shown above:

.

To calculate the rental payment earned by investors using equation (1):

76; 475; 000 Sukuk

p RM4; 025; 000=year

19

investment

4; 025; 000

q RM2; 012; 500

2

.

To calculate the future value of annuity earned by investors using equation (2):

2:25% 219

n 38 i 1:125% R RM2; 012; 500

2

1 0:0112538 2 1

S 2; 012; 500 RM94; 768; 817:18

0:01125

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The accumulated profit at the end of 19 years per unit of sukuk is:

94; 768; 817:18

S RM82:41

1; 150; 000

Appendix 2

There are certain formulas used in this project but were not mentioned earlier. Below are some

formulas that are used for musharakah mutanaqisah principle:

.

The total amount of investment at the end of the tth period:

H t H 0 1 rt21 A1

.

The amount of issuers investment at the end of the tth period:

Qt Q0 1 rt21 A2

.

The amount of semi-annual investment payment at the end of the tth period:

1 rt21 2 1

Wt B A3

r

.

The amount of semi-annual profit for issuers at the end of the tth period:

1 rt21 2 1

Dt r1 2 k P 0 1 rt21 2 B A4

r

.

The amount of accumulated profit for issuers at the end of tth period:

1 rt21 2 1

M t 1 2 k P 0 1 rt21 2 1 2 B 2t A5

r

.

The amount of semi-annual principal at the end of tth period:

St B 2 Ct A6

.

The balance of issuers equity at the end of t payment period:

1 rt 2 1

Qt Q0 tB 2 P 0 k1 rt 2 1 Bk 2t A7

r

QRFM .

The balance of investors equity at the end of t payment period:

4,2/3 1 rt 2 1

E t P 0 k1 rt 2 1 1 2 tB Bk 2t A8

r

Appendix 3

220 Below are a few calculations that were used for musharakah mutanaqisah principle with tenure

of 15 years but were not shown above:

.

To calculate the total amount of investment using equation (A1):

H 0 RM120:00 t 1 r 0:035

Downloaded by FREIE UNIVERSITAT BERLIN At 15:06 12 May 2015 (PT)

.

To calculate the amount of issuers investment using equation (A2):

Q0 RM20:00 t 1 r 0:035

.

To calculate the amount of semi-annual investment payment using equation (A3):

B 5:170255891 t 1 r 0:035

1 0:035121 2 1

W 1 5:170255891 RM0

0:035

.

To calculate the amount of semi-annual profit for issuers using equation (A4):

B 5:170255891 t 1 r 0:035 P 0 100 k 0:8

1 0:035121 2 1

D1 0:0351 2 0:8 1001 0:035121 2 5:170255891

0:035

RM0:7

.

To calculate the amount of accumulated profit for issuers using equation (A5):

1 0:035121 2 1

M 1 1 2 0:8 1001 0:035121 2 1 2 5:170255891 21

0:035

RM0:7

.

To calculate the amount of semi-annual principal using equation (A6):

B 5:170255891 C 1 2:8

.

To calculate the balance of issuers equity using equation (A7): Sukuk

Q0 20 B 5:170255891 t1 r 0:035 P 0 100 k 0:8 investment

Q1 20 15:170255891 2 1000:81 0:0351 2 1

1 0:0351 2 1

5:1702558910:8 21 RM22:3703

0:035

221

.

To calculate the balance of investors equity using equation (A8):

Q0 20 B 5:170255891 t 1 r 0:035 P 0 100 k 0:8

E 1 1000:81 0:0351 2 1 1 2 15:170255891

1 0:0351 2 1

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5:1702558910:8 21 RM97:6297

0:035

Appendix 4

Musharakah mutanaqisah principle tenure of 12.5 years using formulas mentioned in

methodology and Appendix 2 is shown in Table AI.

Musharakah mutanaqisah principle tenure of 15 years using formulas mentioned in

methodology and Appendix 2 is shown in Table AII.

Periodic investment, investment, payment,

Payment no. t payment, B Profit rate, r Ht Qt Wt

0 0 20 0

1 5.7815 0.035 120 20 0

2 5.7815 0.035 124.2 20.7 5.7815

3 5.7815 0.035 128.547 21.425 11.7654

4 5.7815 0.035 133.046 22.174 17.9587

5 5.7815 0.035 137.703 22.950 24.3688

6 5.7815 0.035 142.522 23.754 31.0033

7 5.7815 0.035 147.511 24.585 37.8699

8 5.7815 0.035 152.674 25.446 44.9769

9 5.7815 0.035 158.017 26.336 52.3326

10 5.7815 0.035 163.548 27.258 59.9458

11 5.7815 0.035 169.272 28.212 67.8254

12 5.7815 0.035 175.196 29.199 75.9809

13 5.7815 0.035 181.328 30.221 84.4217

14 5.7815 0.035 187.675 31.279 93.1580

15 5.7815 0.035 194.243 32.374 102.2001

16 5.7815 0.035 201.042 33.507 111.5586

17 5.7815 0.035 208.078 34.680 121.2447

18 5.7815 0.035 215.361 35.894 131.2698

19 5.7815 0.035 222.899 37.150 141.6458

20 5.7815 0.035 230.700 38.450 152.3849

21 5.7815 0.035 238.775 39.796 163.4999

22 5.7815 0.035 247.132 41.189 175.0040

23 5.7815 0.035 255.781 42.630 186.9106

24 5.7815 0.035 264.734 44.122 199.2340

25 5.7815 0.035 273.999 45.667 211.9888

(continued) Table AI.

QRFM Semi-

4,2/3 Semi-annual Accumulated Semi-annual Accumulated annual Balance Balance

profit for profit for profit for profit for principal, issuer investors

investors, Ct investors, Ut issuers, Dt issuers, Mt St equity, Qt equity, Et

0 0 0 0 0 20 100

2.8 2.8 0.7 0.7 2.9815 22.9815 97.0185

2.7361 5.5361 0.6840 1.3840 3.0454 26.0270 93.9730

222 2.6700 8.2061 0.6675 2.0515 3.1115 29.1385 90.8615

2.6016 10.8077 0.6504 2.7019 3.1800 32.3185 87.6815

2.5307 13.3384 0.6327 3.3346 3.2508 35.5693 84.4307

2.4574 15.7958 0.6144 3.9490 3.3241 38.8934 81.1066

2.3816 18.1774 0.5954 4.5444 3.4000 42.2933 77.7067

2.3030 20.4804 0.5758 5.1201 3.4785 45.7718 74.2282

2.2218 22.7022 0.5554 5.6755 3.5598 49.3316 70.6684

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2.0506 26.8904 0.5126 6.7226 3.7310 56.7065 63.2935

1.9605 28.8508 0.4901 7.2127 3.8211 60.5276 59.4724

1.8672 30.7180 0.4668 7.6795 3.9144 64.4419 55.5581

1.7707 32.4887 0.4427 8.1222 4.0109 68.4528 51.5472

1.6707 34.1594 0.4177 8.5399 4.1108 72.5636 47.4364

1.5673 35.7267 0.3918 8.9317 4.2142 76.7778 43.2222

1.4603 37.1871 0.3651 9.2968 4.3212 81.0990 38.9010

1.3495 38.5366 0.3374 9.6341 4.4320 85.5310 34.4690

1.2349 39.7715 0.3087 9.9429 4.5466 90.0777 29.9223

1.1162 40.8877 0.2791 10.2219 4.6653 94.7430 25.2570

0.9934 41.8811 0.2484 10.4703 4.7881 99.5311 20.4689

0.8663 42.7474 0.2166 10.6869 4.9152 104.4463 15.5537

0.7347 43.4821 0.1837 10.8705 5.0468 109.4931 10.5069

0.5986 44.0807 0.1496 11.0202 5.1830 114.6761 5.3239

Table AI. 0.4576 44.5383 0.1144 11.1346 5.3239 120 0

Periodic investment, investment, payment,

Payment no. t payment, B Profit rate, r Ht Qt Wt

0 0 0 120 20 0

1 5.1703 0.035 120 20 0

2 5.1703 0.035 124.2 20.7 5.1703

3 5.1703 0.035 128.547 21.425 10.5215

4 5.1703 0.035 133.046 22.174 16.0600

5 5.1703 0.035 137.703 22.950 21.7923

6 5.1703 0.035 142.522 23.754 27.7253

7 5.1703 0.035 147.511 24.585 33.8660

8 5.1703 0.035 152.674 25.446 40.2215

9 5.1703 0.035 158.017 26.336 46.7995

10 5.1703 0.035 163.548 27.258 53.6078

11 5.1703 0.035 169.272 28.212 60.6543

12 5.1703 0.035 175.196 29.199 67.9475

13 5.1703 0.035 181.328 30.221 75.4959

Table AII. (continued)

Sukuk

14 5.1703 0.035 187.675 31.279 83.3085

15 5.1703 0.035 194.243 32.374 91.3945 investment

16 5.1703 0.035 201.042 33.507 99.7636

17 5.1703 0.035 208.078 34.680 108.4256

18 5.1703 0.035 215.361 35.894 117.3907

19 5.1703 0.035 222.899 37.150 126.6697

20 5.1703 0.035 230.700 38.450 136.2734 223

21 5.1703 0.035 238.775 39.796 146.2132

22 5.1703 0.035 247.132 41.189 156.5009

23 5.1703 0.035 255.781 42.630 167.1487

24 5.1703 0.035 264.734 44.122 178.1692

25 5.1703 0.035 273.999 45.667 189.5753

26 5.1703 0.035 283.589 47.265 201.3807

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28 5.1703 0.035 303.788 50.631 226.2455

29 5.1703 0.035 314.421 52.403 239.3344

30 5.1703 0.035 325.425 54.238 252.8813

Semi-

Semi-annual Accumulated Semi-annual Accumulated annual Balance Balance

profit for profit for profit for profit for principal, issuer investors

investors, Ct investors, Ut issuers, Dt issuers, Mt St equity, Qt equity, Et

0 0 0 0 0 20 100

2.8 2.8 0.7 0.7 2.3703 22.3703 97.6297

2.7532 5.5532 0.6883 1.3883 2.4170 24.7873 95.2127

2.7048 8.2581 0.6762 2.0645 2.4654 27.2527 92.7473

2.6547 10.9128 0.6637 2.7282 2.5155 29.7682 90.2318

2.6029 13.5157 0.6507 3.3789 2.5674 32.3356 87.6644

2.5492 16.0649 0.6373 4.0162 2.6210 34.9567 85.0433

2.4937 18.5586 0.6234 4.6396 2.6766 37.6332 82.3668

2.4362 20.9947 0.6090 5.2487 2.7341 40.3673 79.6327

2.3767 23.3714 0.5942 5.8429 2.7936 43.1609 76.8391

2.3151 25.6865 0.5788 6.4216 2.8552 46.0161 73.9839

2.2514 27.9379 0.5628 6.9845 2.9189 48.9350 71.0650

2.1854 30.1232 0.5463 7.5308 2.9849 51.9198 68.0802

2.1171 32.2404 0.5293 8.0601 3.0531 54.9730 65.0270

2.0464 34.2868 0.5116 8.5717 3.1238 58.0968 61.9032

1.9733 36.2601 0.4933 9.0650 3.1970 61.2937 58.7063

1.8976 38.1577 0.4744 9.5394 3.2727 64.5664 55.4336

1.8192 39.9769 0.4548 9.9942 3.3510 67.9174 52.0826

1.7382 41.7151 0.4345 10.4288 3.4321 71.3495 48.6505

1.6542 43.3693 0.4136 10.8423 3.5160 74.8656 45.1344

1.5673 44.9367 0.3918 11.2342 3.6029 78.4685 41.5315

1.4774 46.4141 0.3694 11.6035 3.6928 82.1613 37.8387

1.3844 47.7985 0.3461 11.9496 3.7859 85.9472 34.0528

1.2881 49.0865 0.3220 12.2716 3.8822 89.8293 30.1707

1.1884 50.2749 0.2971 12.5687 3.9819 93.8112 26.1888

1.0852 51.3601 0.2713 12.8400 4.0850 97.8963 22.1037

0.9784 52.3386 0.2446 13.0846 4.1918 102.0881 17.9119

0.8679 53.2065 0.2170 13.3016 4.3024 106.3904 13.6096

0.7535 53.9600 0.1884 13.4900 4.4167 110.8072 9.1928

0.6351 54.5951 0.1588 13.6488 4.5351 115.3423 4.6577

0.5126 55.1077 0.1281 13.7769 4.6577 120 0 Table AII.

QRFM Musharakah mutanaqisah principle tenure of 17.5 years using formulas mentioned in

methodology and Appendix 2 is shown in Table AIII.

4,2/3 Musharakah mutanaqisah principle tenure of 19 years using formulas mentioned in

methodology and Appendix 2 is shown in Table AIV.

Periodic investment, investment, payment,

Payment no. t payment, B Profit rate, r Ht Qt Wt

0 0 0 120 20 0

1 4.7513 0.035 120 20 0

2 4.7513 0.035 124.2 20.7 4.75

3 4.7513 0.035 128.55 21.42 9.67

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5 4.7513 0.035 137.70 22.95 20.03

6 4.7513 0.035 142.52 23.75 25.48

7 4.7513 0.035 147.51 24.59 31.12

8 4.7513 0.035 152.67 25.45 36.96

9 4.7513 0.035 158.02 26.34 43.01

10 4.7513 0.035 163.55 27.26 49.26

11 4.7513 0.035 169.27 28.21 55.74

12 4.7513 0.035 175.20 29.20 62.44

13 4.7513 0.035 181.33 30.22 69.38

14 4.7513 0.035 187.67 31.28 76.56

15 4.7513 0.035 194.24 32.37 83.99

16 4.7513 0.035 201.04 33.51 91.68

17 4.7513 0.035 208.08 34.68 99.64

18 4.7513 0.035 215.36 35.89 107.88

19 4.7513 0.035 222.90 37.15 116.40

20 4.7513 0.035 230.70 38.45 125.23

21 4.7513 0.035 238.77 39.80 134.36

22 4.7513 0.035 247.13 41.19 143.82

23 4.7513 0.035 255.78 42.63 153.60

24 4.7513 0.035 264.73 44.12 163.73

25 4.7513 0.035 274.00 45.67 174.21

26 4.7513 0.035 283.59 47.26 185.06

27 4.7513 0.035 293.52 48.92 196.29

28 4.7513 0.035 303.79 50.63 207.91

29 4.7513 0.035 314.42 52.40 219.94

30 4.7513 0.035 325.43 54.24 232.39

31 4.7513 0.035 336.82 56.14 245.27

32 4.7513 0.035 348.60 58.10 258.61

33 4.7513 0.035 360.80 60.13 272.41

34 4.7513 0.035 373.43 62.24 286.70

35 4.7513 0.035 386.50 64.42 301.48

Semi-

Semi-annual Accumulated Semi-annual Accumulated annual Balance Balance

profit for profit for profit for profit for principal, issuer investors

investors, Ct investors, Ut issuers, Dt issuers, Mt St equity, Qt equity, Et

0 0 0 0 0 20 100

2.8 2.8 0.7 0.7 1.9513 21.95 98.0487

2.7650 5.5650 0.6912 1.3912 1.9863 23.94 96.0624

Table AIII. (continued)

2.7287 8.2937 0.6822 2.0734 2.0226 25.96 94.0399

Sukuk

2.6912 10.9848 0.6728 2.7462 2.0601 28.02 91.9798 investment

2.6523 13.6372 0.6631 3.4093 2.0989 30.12 89.8809

2.6121 16.2493 0.6530 4.0623 2.1391 32.26 87.7417

2.5705 18.8198 0.6426 4.7050 2.1807 34.44 85.5610

2.5274 21.3473 0.6319 5.3368 2.2238 36.66 83.3372

2.4829 23.8301 0.6207 5.9575 2.2684 38.93 81.0688 225

2.4367 26.2669 0.6092 6.5667 2.3145 41.25 78.7543

2.3890 28.6559 0.5972 7.1640 2.3623 43.61 76.3920

2.3396 30.9954 0.5849 7.7489 2.4117 46.02 73.9803

2.2884 33.2838 0.5721 8.3210 2.4628 48.48 71.5175

2.2355 35.5193 0.5589 8.8798 2.5158 51.00 69.0017

2.1807 37.7000 0.5452 9.4250 2.5706 53.57 66.4311

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2.0653 41.8892 0.5163 10.4723 2.6860 58.88 61.1178

2.0045 43.8938 0.5011 10.9734 2.7467 61.63 58.3711

1.9416 45.8354 0.4854 11.4589 2.8096 64.44 55.5615

1.8766 47.7120 0.4691 11.9280 2.8747 67.31 52.6868

1.8092 49.5212 0.4523 12.3803 2.9420 70.26 49.7447

1.7395 51.2607 0.4349 12.8152 3.0118 73.27 46.7330

1.6673 52.9280 0.4168 13.2320 3.0839 76.35 43.6491

1.5927 54.5207 0.3982 13.6302 3.1586 79.51 40.4905

1.5154 56.0361 0.3788 14.0090 3.2359 82.75 37.2546

1.4354 57.4715 0.3588 14.3679 3.3159 86.06 33.9387

1.3526 58.8241 0.3381 14.7060 3.3987 89.46 30.5401

1.2669 60.0909 0.3167 15.0227 3.4844 92.94 27.0557

1.1782 61.2691 0.2945 15.3173 3.5731 96.52 23.4826

1.0864 62.3555 0.2716 15.5889 3.6649 100.18 20

0.9914 63.3469 0.2478 15.8367 3.7599 103.94 16

0.8930 64.2400 0.2233 16.0600 3.8582 107.80 12

0.7913 65.0312 0.1978 16.2578 3.9600 111.76 8

0.6859 65.7172 0.1715 16.4293 4.0653 115.83 4

0.5769 66.2941 0.1442 16.5735 4.1744 120.00 0 Table AIII.

Periodic investment, investment, payment,

Payment no. t payment, B Profit rate, r Ht Qt Wt

0 0 0 120 20 0

1 4.5603 0.035 120 20 0

2 4.5603 0.035 124.2 20.7 4.5603

3 4.5603 0.035 128.547 21.425 9.2803

4 4.5603 0.035 133.046 22.174 14.1654

5 4.5603 0.035 137.703 22.950 19.2216

6 4.5603 0.035 142.522 23.754 24.4547

7 4.5603 0.035 147.511 24.585 29.8709

8 4.5603 0.035 152.674 25.446 35.4767

9 4.5603 0.035 158.017 26.336 41.2788

10 4.5603 0.035 163.548 27.258 47.2839

11 4.5603 0.035 169.272 28.212 53.4991

12 4.5603 0.035 175.196 29.199 59.9319

(continued) Table AIV.

QRFM 13 4.5603 0.035 181.328 30.221 66.5899

4,2/3 14 4.5603 0.035 187.675 31.279 73.4809

15 4.5603 0.035 194.243 32.374 80.6131

16 4.5603 0.035 201.042 33.507 87.9949

17 4.5603 0.035 208.078 34.680 95.6350

18 4.5603 0.035 215.361 35.894 103.5426

19 4.5603 0.035 222.899 37.150 111.7269

226 20 4.5603 0.035 230.700 38.450 120.1977

21 4.5603 0.035 238.775 39.796 128.9649

22 4.5603 0.035 247.132 41.189 138.0391

23 4.5603 0.035 255.781 42.630 147.4308

24 4.5603 0.035 264.734 44.122 157.1512

25 4.5603 0.035 273.999 45.667 167.2118

26 4.5603 0.035 283.589 47.265 177.6246

Downloaded by FREIE UNIVERSITAT BERLIN At 15:06 12 May 2015 (PT)

28 4.5603 0.035 303.788 50.631 199.5562

29 4.5603 0.035 314.421 52.403 211.1010

30 4.5603 0.035 325.425 54.238 223.0498

31 4.5603 0.035 336.815 56.136 235.4169

32 4.5603 0.035 348.604 58.101 248.2169

33 4.5603 0.035 360.805 60.134 261.4648

34 4.5603 0.035 373.433 62.239 275.1764

35 4.5603 0.035 386.503 64.417 289.3679

36 4.5603 0.035 400.031 66.672 304.0561

37 4.5603 0.035 414.032 69.005 319.2584

38 4.5603 0.035 428.523 71.421 334.9928

Semi-

Semi-annual Accumulated Semi-annual Accumulated annual Balance Balance

profit for profit for profit for profit for principal, issuer investors

investors, Ct investors, Ut issuers, Dt issuers, Mt St equity, Qt equity, Et

0 0 0 0 0 20 100

2.8 2.8 0.7 0.7 1.7603 21.7603 98.2397

2.7703 5.5703 0.6926 1.3926 1.7900 23.5504 96.4496

2.7396 8.3099 0.6849 2.0775 1.8208 25.3711 94.6289

2.7078 11.0177 0.6769 2.7544 1.8526 27.2237 92.7763

2.6749 13.6925 0.6687 3.4231 1.8855 29.1092 90.8908

2.6408 16.3333 0.6602 4.0833 1.9195 31.0287 88.9713

2.6055 18.9389 0.6514 4.7347 1.9548 32.9835 87.0165

2.5690 21.5079 0.6423 5.3770 1.9913 34.9748 85.0252

2.5313 24.0391 0.6328 6.0098 2.0291 37.0039 82.9961

2.4922 26.5313 0.6230 6.6328 2.0682 39.0721 80.9279

2.4517 28.9830 0.6129 7.2458 2.1086 41.1807 78.8193

2.4098 31.3928 0.6025 7.8482 2.1505 43.3312 76.6688

2.3665 33.7593 0.5916 8.4398 2.1939 45.5251 74.4749

2.3216 36.0809 0.5804 9.0202 2.2387 47.7638 72.2362

2.2752 38.3561 0.5688 9.5890 2.2852 50.0490 69.9510

2.2271 40.5832 0.5568 10.1458 2.3332 52.3822 67.6178

2.1774 42.7606 0.5443 10.6901 2.3830 54.7652 65.2348

2.1259 44.8865 0.5315 11.2216 2.4344 57.1996 62.8004

2.0726 46.9591 0.5182 11.7398 2.4877 59.6873 60.3127

2.0175 48.9766 0.5044 12.2441 2.5429 62.2302 57.7698

1.9604 50.9370 0.4901 12.7342 2.5999 64.8302 55.1698

1.9013 52.8383 0.4753 13.2096 2.6590 67.4892 52.5108

Table AIV.

(continued)

1.8402 54.6785 0.4600 13.6696 2.7202 70.2094 49.7906 Sukuk

1.7769 56.4553 0.4442 14.1138 2.7835 72.9928 47.0072 investment

1.7114 58.1667 0.4278 14.5417 2.8490 75.8418 44.1582

1.6436 59.8103 0.4109 14.9526 2.9167 78.7585 41.2415

1.5734 61.3838 0.3934 15.3459 2.9869 81.7454 38.2546

1.5008 62.8846 0.3752 15.7211 3.0595 84.8049 35.1951

1.4257 64.3102 0.3564 16.0776 3.1347 87.9396 32.0604

1.3479 65.6581 0.3370 16.4145 3.2125 91.1521 29 227

1.2673 66.9254 0.3168 16.7314 3.2930 94.4451 26

1.1840 68.1095 0.2960 17.0274 3.3763 97.8214 22

1.0978 69.2072 0.2744 17.3018 3.4626 101.2840 19

1.0085 70.2157 0.2521 17.5539 3.5518 104.8358 15

0.9161 71.1318 0.2290 17.7830 3.6442 108.4800 12

0.8205 71.9523 0.2051 17.9881 3.7399 112.2199 8

Downloaded by FREIE UNIVERSITAT BERLIN At 15:06 12 May 2015 (PT)

0.6191 73.2929 0.1548 18.3232 3.9413 120 0 Table AIV.

Mariam Jamilah Abdul Jalil graduated from Universiti Teknologi MARA, Malaysia with a

Bachelors Degree in Mathematics and has since worked with the largest bank in Malaysia. Her

research and knowledge in Islamic finance has assisted her in her career advancement and she

will be proceeding to pursue a Masters in Science (Mathematics) overseas. Mariam Jamilah

Abdul Jalil is the corresponding author and can be contacted at: mariam.j@maybank.com.my

Zuriah Abdul Rahman is a Professor in Islamic Insurance/Insurance and Risk Management

and currently serving as the Director of Arshad Ayub Graduate Business School, Universiti

Teknologi MARA, Malaysia.

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