TAYLOR’S BUSINESS SCHOOL

MASTER IN FINANCE (MIF) &

MASTER IN MANAGEMENT (MIM) & INTEGRATED BACHELOR

MASTER PROGRAMME(IBMP)

INDIVIDUAL ASSIGNMENT

MODULE NAME : ISLAMIC FINANCE

MODULE CODE : FIN70504

DATE : 13TH DECEMBER 2020

Lecturer: Dr. Hafezali Iqbal Hussain

Candidate Name SHAHEER ALI MEMONk

Candidate Number 0343584

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Sukuk Issues in major Islamic Finance market(s) such as Malaysia

Contents
Introduction......................................................................................................................................2

Sukuk in Malaysia........................................................................................................................2

Issues................................................................................................................................................3

Accounting perspective................................................................................................................4

Prudential issues...........................................................................................................................5

Liquidity of Sukuk Instruments...................................................................................................5

Implications.....................................................................................................................................6

Comparison between Sukuk and bonds...........................................................................................7

Conclusion.....................................................................................................................................10

References......................................................................................................................................11

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Introduction
Islamic economics has been popular around the world for three decades, and the demand for
Islamic financial instruments is growing rapidly. Among Islamic financial instruments, Sukuk
focuses on banks, companies and consumers, and Sukuk is an Islamic financial instrument that
supports assets issued by Islamic financial institutions under Islamic law.

Sukuk can be defined as "In Islamic economics, Sukuk means ownership or claim of rights over
a particular asset or group of assets. Technically, Sukuk is a common document that represents
shares." Bond (non-distributable shares) containing large fixed assets, interests and services. Suk
often issues special vehicle cancellation certificates (SPVs or issuers). Sukuk products are
companies, financial institutions, insurance companies or governments, Islamic law, Sukuk
capital, Murabaha, Wakala, etc., which define an investment or financial agreement (S&P Global
Ratings, 2017)..

Sukuk in Malaysia
The main business sectors of Islamic finance in Malaysia are Islamic Takful Banking, Islamic
Capital Markets, Welfare and Financial Management and Financial Planning. In 1983, the first
Islamic bank for the management of financial assets, Islam Malaysia Berhad, was established.
Islamic Finance Bank Islamic Malaysia deals in cash with interest free State Investment
Certificate (GIC) in accordance with Berhad Hassan Loan Principle. In 1993, 17 state-owned
banks opened Islamic branches in the interest-free banking system. As a result, the Islamic
money market in Malaysia has grown. In 2002, Niagara Bank allowed public banking branches
in Malaysia to operate Islamic banking services through automated teller machines (Abisini,
2013). Malaysia currently has 5 wholly Islamic banks and 11 government-owned Islamic
branches. In terms of growth, Islamic financial institutions in Malaysia grew with total assets of
14 414 billion.

Syracuse Takful Militia Berhad expanded its sphere of interest in Malaysia as it was the first
Takful company in Malaysia to offer Sharia Insurance in 1985 and Takaful Insurance in 1994.
Malaysia Second National (MNI) has been established. The Malaysian Takfal industry is
currently comprised of 11 Takfal companies, including local and international Takfal
entrepreneurs. Malaysia, the International Islamic Financial Authority, releases the largest
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number of citizens, including the first Global Sukuk released by Shell MDS (Malaysia) in 1990
and the first Global Sukuk issued by Gutri in 2003 and the Malaysian Sukuk market. Were. It has
grown rapidly since 2001. The number of bond issuers has exceeded the value of existing bonds,
which have a growth rate of 21%. Malaysia, a leader in Islamic finance, dominated the arid
region from the beginning despite its growing share. However, the main player is still Malaysia.
The new trend of skepticism is the publication of "Green Skunk" and "Social Impact Tools" to
support Shariah-compliant and environmentally friendly companies and responsible companies.
Since the Malaysian Securities Commission (SEC) launched the Sukuk Framework for
Sustainable and Responsible Investment (SRI) in 2014 to facilitate finance, one of the main
reasons for innovation in this Sukuk issue worldwide. And the market share of funds for
responsible investment initiatives in Malaysia is 28.8% percent with RM 138.7 billion Sukuk
issuance.

Issues
Despite the increase in the number of scientific disciplines at Sukuk, their number is less than
other areas and their essence still depends on theoretical aspects, organizational issues and
working methods. However, studies on the relationship between drought and economic growth
are rare (Zulkhibari, 2015).

Ibrahim and Money 2009 examined the importance of sukuk in attracting investment in
companies. Research has shown that making money in Sukuk is recommended for small
companies that are more likely to invest. The bond market remained positive

Discussions on the legal framework for issuing autonomous sukuk in the most important
decisions on Islamic framework in the Islamic capital markets and the Islamic framework
framework in Malaysia, announced by Mohammed and Youssef Odzi, 2015.

Sarbuddin, Mohammad, Razif, Abdullah and Abdul Rehman, 2012, reconstituted the concept of
the Sukuk common sense and investigated and investigated the issue, published in accordance
with the Koklalampur Central SDNBHD (KLSB) Islamic Principles. Related

Ahmed and Rudzi examined the stability of Malaysia's shock and traditional bond issues during
the 2011 financial crisis based on three factors: GDP, foreign exchange and market liquidity. The

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study used 20-year data (e.g. 1990-2009) and Minimum Squad Reaction (OLS), and found that
Sukuk was less affected by the financial crisis due to infrastructure structures different from
traditional bonds. While gross domestic product, foreign exchange and global liquidity are taken
into account when issuing SKUs, traditional bonds are issued only in foreign currency
installments.

The issuance of sukuk in Malaysia largely depends on the structure of the Marabaha sukuk, but
the Malaysian government encourages lawyers to issue sukuk on the basis of sukuk structures
and leases, providing tax-exempt benefits to sukuk issuers (Thomson Reuters, 2017).

A study by Elias and Mohammed (2013) shows that one of the most important criticisms
directed at Sharia scholars is that Sukukk has beneficial assets based on assets as he owns some
of the researcher's basic assets. For this reason, some Islamic practitioners have debated whether
the status of bond property meets the requirements of Sharia. In most countries, including
Malaysia, Sukuk is mostly asset-based and not asset-based, due to restrictions on foreign
ownership of certain assets, and the SKOK holder has greater security benefits from that asset.
This means that the owner of the reserve is not the owner of the property, but only the lender. In
the event of a military bond, the surplus with the sale of property must be returned to the debtor.
Compared to the property-based sukuk, the sukuk holder owns the entire ownership of this
material, so Dizbida Zenal Abidin and Shahida Shahimi (2013) do not allow the property-based
sukuk holder to take any interest in the underlying property, and in this case, The owner of the
property retains ownership of the property only (Bahari et al., 2016)..

Accounting perspective
In the context of Malaysia, after analyzing the methods of Islamic accounting in an Islamic bank,
based on an interview with the bank's financial director, Mohammad Adil Abdul Sakhar (2008),
the net profit was divided into two categories: first. , The bank closes this gap when there is a
zero (coupon) discount. Between the set price and the amount paid for the full withdrawal
period, and the consumption is updated in the "deposit" account.

On the other hand, if a bond profit (coupon) is generated, the bank records the profit as profit and
credits it to the account. As a result, we can conclude that there is no significant statistical
difference between the way loans are issued in Malaysia and the old sukuk accounting, except

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for the account names used by banks. In our opinion, this is due to the fact that AOIFIS 17 P has
not yet been enforced in Malaysia.

Prudential issues
If Sukuk is held by a financial institution, whether simple or Islamic, it may be necessary to
consider how it will behave in a regulatory manner when calculating corporate capital liabilities.
At the time of writing, changes in the Basel Convention have been similar to the global financial
crisis. However, there is no reason to doubt that the Base La Basel 2 framework will remain the
same, that is, the difference between a trading laser and a non-trading laser will remain and is a
key strategy for measuring capital risk. There is both a complex organizational system and a
strategy that can maintain the internal pattern with the approval of competent authorities. Better
confirmation and search forms are also available in the market..

Liquidity of Sukuk Instruments

Different figures from the sources of liquid market experts show that in terms of the market, the
liquidity of this market i.e. H.P. Although the sector is relatively unstable or volatile, the facts
suggest that the Sukuk market will have to consider how to increase liquidity without the liquid
market, Sukuk will never be able to continue, and the Sukuk market is still in its infancy. Is.
Therefore, the prediction that they will face this fate is still under discussion. Because liquidity is
low in the case of traditional bonds, it is better to assess the level of liquidity issues in Islamic
financial instruments and whether there is more than one issue that can help. Lack of liquidity in
terms of savings may be another reason why the return to the bond market is much higher than
the same time and quality bond markets. In addition, structural changes must be made, such as
the need to establish market makers to generate liquidity. The second option is to have an offer
where market makers buy the offer. This information should be published exclusively by
designated brokers and dealers. Liquidity is an important part of market security and needs to be
carefully analyzed (Ramdali Mohammad Shamshir et al., 2012).

Implications
According to Goodlowski et al (2011), Malaysia dominates the suku market with about 75% of
the total emissions and is the largest sukuk market. Malaysia accounts for 58.1% of total sukuk

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sales, followed by the Middle East region and represents 30% of total sukuk investments in the
world.

As noted above, despite major transactions over the past two years, the Dubai International
Financial Exchange (DIFX) has become the world's largest hub, with eight listings surpassing 10
10 billion in June. 2007 (DIFC, 2007) Malaysian law, like English law (Wilson, 2008), plays a
key role in the expansion of the bond market, with special provision for charity funds. Malaysia's
legal framework facilitates private car parking, as it simplifies the need to secure the ownership
of all comfortable people and manage payments to investors. With this favorable legal
environment, Sukuk concern in Malaysia is growing and the secondary market is growing more
actively than the GCC region, so we will focus on Sukuk work on the Malaysian stock exchange.

To explain why Sukuk issues are more negative than traditional bond issues, we suggest that
only lenders who expect low returns should treat Suk when issuers expect low returns. The
revenue of those who want to order reduces the deficit in case of financial failure. When
exporters expect higher profits, they need interest-based finance for maximum profits if they
succeed. As a result, market investors expect less knowledgeable borrowers to release Suk and
interpret it as a negative sign of the interpreter's financial position. Due to the high demand for
Sukuk from Islamic countries and Islamic banks, in addition to the limited supply of Sukuk in
the market, the increased demand for Sukuk makes these devices more popular and easier to
market than traditional ties. Because they cannot issue traditional bonds, they still have access to
finance through Sukuk troubles, and the market sees this as a reliable signal and does not answer
Sukuk question positively.

One possible explanation for the use of Islamic bond announcements over traditional bond
declarations in a crisis is that the investor base in Islamic debt is wider than traditional debt,
resulting in lower capital expenditures. Refunds are made at the expense of another explanatory
explanation is the demand for sukuk in support of large assets in the post-crisis world market
(Ernst & Young, 2012) and the fact that the proclamation of Islam reinforces the status quo.
Does. In securities issuing companies, investor interest increased and stock prices rose.

Our interpretation of the results is strongly supported by the distinction between the
characteristics of traditional bond and bond issuers, as bond issuers are less efficient, less

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profitable, and have worse financial and operational performance than higher income
institutions. Circumstances are such that as government bonds are issued, these weaker
companies may be able to provide financial assistance rather than interest-bearing securities,
such as Islamic financial principles, rather than interest-bearing instruments that create a greater
financial burden.

Comparison between Sukuk and bonds

Hasina Woolen (2012) focuses on issues related to bond bonds as the bond structure mimics the
nature of traditional bonds as they trade in the Malaysian market. These issues have sparked
controversy over Sharia as well as other ways of financing Islamic law.

Goodlowski and Rahmatullah Aleh (2013) on the response to the announcement of public
bonding and bonds in the Malaysian investor market. The stock market is neutral in the
announcement of public bonds. However, the negative reaction to the announcement of Sukuk's
release, Godlevsky et al. (2013) was associated with the need for a strong Islamic investment
certificate and negative choices, with fewer credit experts eliminating the sukuk.

Themmers (2013) examines the compatibility between bond and contractual responsibilities. The
authors tried to compare the two financial instruments from different perspectives such as their
structure and risk / reward characteristics, Tahmur (2013) said that issuers and investors can
choose these financial instruments because they are comfortable. And bonds. However, there is a
fundamental difference between the two groups. In fact, bonds are a loan instrument while Suk is
a stock instrument, so Suk is a viable option for investors who want to follow the principles of
Islamic finance.

Collected, these results indicate that there was no significant market reaction between 2000 and
2015 for long-term or traditionally fixed rate bonds. This has been confirmed by several
statistical experiments, and we refute these results because the issuance of traditional bonds is a
positive sign. This eliminates the problem of poor selection for company standards and causes
data imbalances between managers and owners. Bhandar (Ras, 1977)

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For our special comparison, we use the method of checking the patterns of registered non-
financial companies, programs and markets in Malaysia and the FTSE Bursa Malaysia Gold
Index.

However, these results differ from a recent study by Godlevsky et al (2013), which showed that
stock exchanges react differently to bond issues than traditional bonds. Although the issuance of
classic bonds is not related to the reaction of the stock market, the issuance of bond is associated
with the negative reaction in the stock market, Goodlowski et al (2013) found that the market
reacted to the results announced: 1. ) Stock investors say that the financial condition of the
companies is bad or. It can also claim a ban from the traditional stock market. Most of the
demand is from Islamic banks. 2) Stock market participants may find that companies expecting
negative profits are more likely to opt for lucrative transactions with a view to sharing profits and
losses for common bond cases. This may indicate that investors are making deals with poor
borrowers.

Our analysis reveals a slight difference in the pre-crisis response of the Malaysian stock market
over time and in the case of traditional fixed price bond and fixed rate bonds. However, there is a
significant difference in how Malaysian stocks respond to fixed-income loans against rising
interest rates as a result of the global financial crisis. This evidence has been validated using
various stress tests, including four different pressure sensors.

According to our analysis, the amount of debt is generally slightly higher than the amount of
breast issue and the amount of bond issue in general is slightly higher than the amount associated
with the bond issue, and on breast, the bond issue period is the traditional bond issue. This shows
that these financial equity instruments provide higher returns and higher investment risk than
current profits and capital. However, research shows that fixed breast fixed coupons in Sukuk are
slightly higher than traditional bonds (5.36% compared to 5.36%), and general bonds are issued
at lower discounts in Malaysia. This represents the potential capital gains of the bondholders as
compared to the original bond bonds (99.76% nominal 99.97%). These initial results are
interesting because, despite their longevity, the base bond does not carry the risk of investing
more than the traditional matrix. We can therefore conclude that, like traditional bond issuers,
sukuk issuers charge interest on long-term earnings regardless of sukuk, and the results are

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usually significantly different in composition. The total return and therefore the investment risk
depends on the type of bond.

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Conclusion
In order to continue the development in Malaysia, it is recommended that it continue to move
forward on a large scale for infrastructure projects under construction, possibly due to the
complexity of its facilities. Raising funds by issuing sukuk at such times will boost the real
economy and the financial sector as sukuk is more about the real economy than traditional bond
finance, creating virtual value without being backed by properly valued assets.

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market perspective”, Journal of Comparative Economics, 41(3), 745-761.

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