Forward Lease Sukuk in Islamic Capital Markets Structure and Governing Rules 1St Ed Edition Ahcene Lahsasna Full Chapter

Forward Lease Sukuk in Islamic Capital
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FORWARD
LEASE SUKUK
IN ISLAMIC
CAPITAL
MARKETS
Structure and Governing Rules
Ahcene Lahsasna,
M. Kabir Hassan,
Rubi Ahmad
Forward Lease Sukuk in Islamic Capital Markets
Ahcene Lahsasna · M. Kabir Hassan
Rubi Ahmad
Forward Lease Sukuk

in Islamic Capital
Markets
Structure and Governing Rules
Ahcene Lahsasna Rubi Ahmad
Salihin Shariah Advisory Department of Finance and Banking,
Kuala Lumpur, Malaysia Faculty of Business and Accountancy
University of Malaya
M. Kabir Hassan Kuala Lumpur, Malaysia
Department of Economics
and Finance
University of New Orleans
New Orleans, LA, USA
ISBN 978-3-319-94261-2 ISBN 978-3-319-94262-9 (eBook)

https://doi.org/10.1007/978-3-319-94262-9
Library of Congress Control Number: 2018947406
© The Editor(s) (if applicable) and The Author(s) 2018

This work is subject to copyright. All rights are solely and exclusively licensed by the
Publisher, whether the whole or part of the material is concerned, specifically the rights
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This Palgrave Macmillan imprint is published by the registered company Springer

International Publishing AG part of Springer Nature
The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland
Preface
The present book focuses on one of the instruments in Islamic capi-

tal market that is forward lease Sukuk also known as Ijarah mawsufah
fi dhimmah. It discusses its structure, governing rules and analyse the
Shari’ah issues along with the issuance process of this type of Sukuk. The
present book adds value to Sukuk market and contributes to the growth
and expansion of the Islamic capital market industry by presenting a
comprehensive structure of forward lease which is regarded as innovative
class asset. The idea of forward lease Sukuk is based on raising fund from
non-existent asset where the subject matter does not exist during the
time of the Sukuk issuance. This Shari’ah flexibility that exist in Ijarah
makes Ijarah sukuk mawsufah fi dhimmah a dynamic financial instru-
ment and resilient structure in the Islamic capital market that deserves
to be promoted and encouraged in the related industry. The forward
lease Sukuk related to tangible portfolio consists of Istisna and Ijarah;
hence, it is a combination of two contracts where the rules of Ijarah in
Islamic law will be applicable to Ijarah sukuk and the rules of Istisna will
be applicable to Sukuk istisna. However, as overall structure the forward
Ijarah sukuk is considered as a part of Ijarah sukuk portfolio that has
more features and advantages that make it viable and dynamic instru-
ments in Islamic capital market. Hence, the present book discusses the
concept of forward lease Sukuk, in relation to its features, characteristics,
structure, process of issuing, rules of trading in the secondary market,
and other relevant issues and aspects. The book shows the significant fea-
tures of forward lease Sukuk as a Shari’ah compliant instrument in the
v
vi Preface
capital market and its vital contribution to project construction and man-
ufacturing within the expanding field of Islamic finance.
Objectives of the Book

This book aims to discuss the concept, features, characteristics, structure,
mechanism, process of issuing, trading in the secondary market, and
other relevant issues and aspects that are relevant to Ijarah sukuk. Hence
the book attempts to attain the following objectives:
1. To present a comprehensive structure of forward Sukuk as a promi-

nent and promising instrument in the capital market.
2. To critically discuss the process of issuing and trading a forward
lease Sukuk in the primary and secondary market.
3. To emphasize on the significance and importance of forward lease
Sukuk in the Islamic capital market in terms of investment and
fund mobilization.
4. Discuss and analyze different issues and challenges in forward lease
Sukuk from the perspective of Shari’ah, law and marketability in
the Islamic finance industry.
5. Identify the causes behind the low tendency toward issuance of
Sukuk based on forward lease structure as compared to others
types of Sukuk.
Scope of the Book

This book proposes to cover the various types and characteristics of the
Sukuk be it debt-based, equity-based, or a hybrid of both. The book will
be highlighting on the popular Sukuk with some analysis. It will focus
on Ijarah sukuk as prominent Sukuk in the Islamic capital market. The
concept of forward lease Sukuk is based on the theory of ijarah and
istisna. As previously mentioned, it is important to discuss the basic
rules of ijarah under Islamic law as it represents the underlying theory
of Sukuk structure. In addition to that, the book will look into the dif-
ferent types of ijarah, which includes the forward lease that represents
the main concern of the present book. A cross comparison between dif-
ferent types of Ijarah sukuk is needed to have an appreciation of the fea-
tures and the different characteristics of forward lease Sukuk. It should
Preface vii
be noted that forward lease Sukuk is a part of Ijarah sukuk; however,

there are special features in forward lease that makes it unique, flexible
and a potential contract that can play a prominent role in the capital mar-
ket. Furthermore, the structure of forward lease is different from normal
Sukuk thus there will be some issues pertaining to forward lease Sukuk
that are related to legal and Shari’ah aspects which the book will high-
light and discuss in order to address the relevant solutions and to ensure
the Shari’ah compliant procedure in forward lease Sukuk.
Kuala Lumpur, Malaysia Ahcene Lahsasna

New Orleans, USA M. Kabir Hassan
Kuala Lumpur, Malaysia Rubi Ahmad
Contents
1 Introduction to Sukuk 1
1.1 Introduction 1
1.2 An Overview on Sukuk 1
1.3 Sukuk as an Investment Certificate 2
1.4 Sukuk Versus Bonds 5
1.5 The Common Features Between Sukuk and Bonds 6
1.6 Sukuk Versus Shares 6
1.7 Sukuk Versus Securitization 8
1.8 Conclusion 9
References 9
2 An Overview of Islamic Capital Market (ICM)

and Sukuk Industry 11
2.1 Introduction 11
2.2 General Introduction to Islamic Capital Market
(ICM) 12
2.3 General Overview on Sukuk Market in Islamic Finance 19
2.4 The Growth of Sukuk Industry and Its Challenges
in the Current Global Financial Market 23
2.5 An Analysis of Sukuk in Islamic Capital Market 27
2.6 Key Milestones in Sukuk Market 30
2.7 Selected Notable Sukuk Issued 30
2.8 Conclusion 34
References 35
ix
x Contents
3 Sukuk in Islamic Capital Market 37

3.1 Introduction 37
3.2 Definition and Concept 37
3.3 Characteristics of Investment Sukuk 38
3.4 Shariah Rulings and Requirements for Sukuk 39
3.5 Shariah Foundation and Risk Factors in Sukuk 42
3.6 Conclusion 47
References 47
4 Types of Sukuk, Their Classification

and Structure in Islamic Capital Market 49
4.1 Introduction 49
4.2 Types of Sukuk 49
4.3 Calcification of Sukuk Based on Shariah Contract 68
4.4 Conclusion 85
References 85
5 Theory of Ijarah, Securitization and the Concept

Financial Certificate 87
5.1 Introduction 87
5.2 Ijarah in Islamic Finance 87
5.3 Securitization and the Financial Certificate 95
5.4 Ijarah Sukuk in Islamic Capital Market 101
5.5 Conclusion 110
References 110
6 Forward Ijarah Sukuk: Concept, Issuance,

Structuring and General Governing Rules 111
6.1 Introduction 111
6.2 Forward Lease 112
6.3 Issuance of Forward Lease Sukuk 134
6.4 Illustration of the Process and Phases of Sukuk
Issuance (The Structure of Forward Lease Sukuk) 137
6.5 Structuring Forward Sukuk al-Ijarah and Steps
Involved 138
6.6 General Rules of Forward Leasing 139
6.7 Issues in Forward Ijarah Sukuk 140
6.8 Conclusion 147
References 147
Contents xi
7 Major Principles, Terms and Conditions

Governing Ijarah Sukuk Issuance as Practiced
in the Islamic Capital Market 149
7.2 The Description of Islamic Structure
of the Issuance 149
7.3 The Important Shariah Aspects of the Structure
of Ijarah Sukuk 153
7.4 Important Shariah Aspects in the Legal
Documents 157
7.5 Other Terms and Condition in Ijarah Sukuk Issuance 159
7.6 Conclusion 170
8 Forward Lease/Ijarah Sukuk: Issues, Challenges

and Shariah Compliance 171
8.2 Shariah Issues in Forward Lease Sukuk 171
8.3 The Principles Terms and Conditions (PTC)
in the Sukuk Issuance 172
8.4 The Legal Documentations/Transaction
Documents in Sukuk Issuance 173
8.5 The Structure of the Sukuk Issuance 176
8.6 The Trading Issue in Sukuk 181
8.7 Legal Issues in Forward Ijarah Sukuk 181
8.8 Industry Challenges of Forward Ijarah Sukuk 182
8.9 Industry Acceptance of Forward Ijarah Sukuk 183
8.10 Future Direction of Sukuk Issuance Based
on Forwards Lease Sukuk 184
8.11 The Sukuk That Have Been Issued Based
on Forward Lease Sukuk 184
8.12 Conclusion 185
9 Ijarah Sukuk and Forward Lease

Sukuk—Case Study 187
9.2 Ijarah Sukuk 187
9.3 Forward Lease Sukuk Case Study 197
9.4 Conclusion 204
References 205
xii Contents
10 Conclusion, Recommendation
and Policy Implication 207
10.1 Importance of Sukuk and Ijarah Sukuk 207
10.2 Forward Lease Sukuk as Innovative Structure 208
10.3 Forward Lease Sukuk Regulatory Guidelines 208
10.4 Forward Lease Sukuk Issues and Challenges 209
10.5 Forward Lease Case Studies 211
10.6 The Underlying Asset in Forward Lease Sukuk 211
10.7 Shariah Compliance Features
in Forward Lease Sukuk 212
10.8 The Legal Documentation in Forward
Lease Sukuk 212
10.9 The Expert of Sukuk Market and Forward
Lease Sukuk 213
References 213
Appendix A: Securities Commission Malaysia

Guidelines on Sukuk 215
Appendix B: IFSB Requirements on Sukuk Issuance 221
Appendix C: DFM Standard for Issuing,

Acquiring and Trading Sukuk 237
Appendix D: Glossary 269
Bibliography 273
Index 281
Abbreviations
AAOIFI Accounting and Auditing Organization

for Islamic Financial Institutions
BNM Bank Negara Malaysia
EL Expected Loss
FIs Financial Institutions
IAIB International Association of Islamic Banks
IDB Islamic Development Bank
IFSB Islamic Financial Service Board
IOSCO International Organization of Securities Commissioners
IRTI Islamic Research and Training Institute
LIBOR London Inter-bank Offered Rate
OIC Organization of Islamic Conference
PLS Profit-and-Loss Sharing
PPFs Principal Protected Funds
SC Securities Commission Malaysia
SPV Special Purpose Vehicle
xiii
List of Figures
Fig. 2.1 Global Sukuk issuances: Sukuk report, IIFM (2009) 25

Fig. 2.2 International Sukuk issuances: Sukuk report, IIFM (2009) 26
Fig. 2.3 Medjool Sukuk Wakalah (Source Author) 32
Fig. 2.4 DIB Sukuk Mudharabah (Source Author) 33
Fig. 2.5 Saudi Electricity Company Sukuk bai istijrar (Source Author) 34
Fig. 4.1 Asset-based Sukuk structure (Islamic debt securities) 51
Fig. 4.2 Asset-backed securitisation process (Source Author) 54
Fig. 4.3 Cagamas Mortgage backed Sukuk (Source Author) 55
Fig. 4.4 Golden Crop Return Berhad—GCRB (Source Author) 56
Fig. 4.5 Exchangeable Sukuk issuance (Source Author) 59
Fig. 4.6 Exchangeable mechanism (Source Author) 60
Fig. 4.7 Khazanah exchangeable Sukuk 2006 (Source Author) 62
Fig. 4.8 Step 2 Periodic payment (Source Author) 63
Fig. 4.9 Step 3 Dissolution amount upon maturity (Source Author) 64
Fig. 4.10 Hybrid Sukuk (Source Author) 65
Fig. 4.11 IDB Trust Certificate Issuance Program (2009) (Source
Author) 67
Fig. 4.12 Sukuk mudarabah (Source Author) 70
Fig. 4.13 AABAR mudarabah Sukuk (Source Author) 70
Fig. 4.14 Sukuk musharakah (Source Author) 72
Fig. 4.15 Imtiaz Sukuk Berhad (Source Author) 72
Fig. 4.16 MAS Junior Sukuk (Source Author) 73
Fig. 4.17 Sukuk salam (Source Author) 74
Fig. 4.18 Bahrain Sukuk salam (Source Author) 75
Fig. 4.19 Sukuk istisna (Source Author) 78
Fig. 4.20 Durrat Sukuk Sukuk Bahrain (Source Author) 79
xv
xvi List of Figures
Fig. 4.21 Two parties parallel istisna (Source Author) 80

Fig. 4.22 Tripartite istisna’ arrangement (Source Author) 80
Fig. 4.23 Arcapita Bank murabahah issuance (Source Author) 82
Fig. 4.24 Sukuk murabahah via tawarruq with SPV (Source Author) 83
Fig. 4.25 Sukuk murabahah via tawarruq without SPV
(Source Author) 84
Fig. 5.1 Ijarah sukuk (Source Author) 104
Fig. 5.2 Malaysia Global Sukuk (Source Author) 105
Fig. 5.3 WAPDA Ijarah sukuk (Source Author) 107
Fig. 5.4 Types of Ijarah sukuk (Source Author) 108
Fig. 6.1 Ijarah structure (Source Author) 137
Fig. 6.2 Istisna’ structure (Source Author) 138
Fig. 7.1 Ijarah sukuk structure (Source Author) 151
Fig. 9.1 The Malaysia global Sukuk structure (Source Global Sukuk
and Islamic Securitization Market, Financial Engineering
and Product Innovation, p. 172) 189
Fig. 9.2 Pakistan International Ijarah sukuk 191
Fig. 9.3 Saxony-Anhalt Sukuk structure 192
Fig. 9.4 IDB Trust Certificate Structure 196
Fig. 9.5 The Zam Zam Tower al-Intifa’a Sukuk structure 199
Fig. 9.6 Transaction flow of USD200m TABREED SUKUK 2006
(Istisna’ Stage) (Source Author) 201
(Ijarah Stage) (Source Author) 202
(additional feature) (Source Author) 203
List of Tables
Table 2.1 Key milestones in Sukuk market 31

Table 4.1 Asset-based Vs Asset back Sukuk 57
Table 4.2 No conversion/exchange Vs conversion/exchange 58
Table 5.1 Tradability of Ijarah sukuk in the secondary market 107
Table 6.1 Risk mitigation & Area of risk 133
Table 9.1 Summary of the Malaysia Global Sukuk 188
Table 9.2 Pakistan Ijarah sukuk 190
Table 9.3 Summary of the Saxony-Anhalt Sukuk 193
Table 9.4 Summary of the IDB Trust Certificates Sukuk 195
Table 9.5 Summary of the Zam Zam Tower al-Intifa’a Sukuk 198
Table 9.6 Summary of the Tabreed Sukuk 2006 200
Table 10.1 Tradability of Ijarah sukuk in the secondary market 209
xvii
CHAPTER 1
Introduction to Sukuk
1.1 Introduction
In recent years the Sukuk market has grown tremendously; it has
become one of the fastest growing sectors in Islamic finance industry.
Sukuk is regarded as a dynamic instrument for capital mobilization in
both Islamic and conventional capital markets. In conventional finance,
sources of funds or financing are obtained either through equity or debt.
Equity financing is raised through the issuance of shares while debt is
raised through the issuance of bonds. In Islamic finance, there are vari-
ous sources of funds and Sukuk represents one of them.
1.2 An Overview on Sukuk

From a technical point of view, Islamic bond (or Sukuk) is defined as cer-
tificates of equal value representing ownership over an underlying asset.
Thus, they represent common shares and rights over the underlying
assets or over usufruct (benefits derived from an underlying asset) and
services. Sukuk have been structured and placed in the market according
to different contracts such as ijarah, mudarabah or musharakah. Ijarah
sukuk remains the most robust and solid instrument structure, and is
considered as the most Shari’ah compliant compared to other types of
Sukuk. Ijarah sukuk consists of a wide range including, usufruct, services
for an existing asset or based on forward leasing known as ijarah mawsu-
fah fi al dhimmah. Ijarah sukuk are asset-backed, provides consistent and
© The Author(s) 2018 1

A. Lahsasna et al., Forward Lease Sukuk in Islamic Capital Markets,
https://doi.org/10.1007/978-3-319-94262-9_1
2 A. LAHSASNA ET AL.
stable income to the investors, are tradable in the secondary market and
is represented by Shari’ah compliant trust certificates. They represent
ownership of equal shares over an underlying asset or over usufruct of
real estate. The return on the Sukuk is derived from the yield generated
by the client’s lease of the asset. It gives their owners the right to own
the real estate, receive the rent and dispose their Sukuk in a manner that
does not affect the right of the lessee. The Sukuk holders bear all cost of
maintenance and damages that may occur to the real estate
This present book aims to specially focus on forward leasing Sukuk
under Ijarah sukuk with specific focus to forward lease. Hence there are
specific features for forward lease Sukuk that make the structure more
dynamic and flexible to accommodate current business models, and at
the same time meeting the requirements of the modern finance in fund
dissemination and mobilization.
This book also focuses on the concept of forward lease Sukuk with refer-
ence to its concept, structure, mechanism, governing rules, along with the
process of issuance with emphasis on the various Shari’ah issues. The book
adds value to current academic literature as it represents the first study that
looks into the forward lease Sukuk as the main item of interest, discussing
its concept and governing rules. The book also contributes to the growth
of the Islamic capital market industry by addressing the legal and Shari’ah
issues along with the discussion on some cases as practiced in the market.
The idea of forward lease Sukuk is based on raising fund from a
non-existent asset. A forward lease can accommodate projects such as
building, construction or manufacturing where the subject matter does
not exist at the beginning of the contractual agreement. This condition
makes Ijarah sukuk mawsufah fi al dhimmah an attractive and dynamic
financial instrument in the Islamic capital market. Forward Sukuk is con-
sidered as a part of Ijarah sukuk that have features and advantages that
make them a practical financial instrument for the Islamic capital market.
1.3 Sukuk as an Investment Certificate

Sukuk is an investment certificate of equal value representing after closing
subscription, receipt of the value of the certificates, and putting it to use
as planned; thus, it represents common shares and rights in the under-
lined assets or their usufructs and services (AAOIFI Shariah Standards,
2010). The characteristic of Sukuk and its benefit attract many financial
institutions to subscribe to the exercise of issuance and investing.
1 INTRODUCTION TO SUKUK 3
The main benefits of Sukuk are as follows:
• Investment Sukuk are documents issued in equal value in the name

of the owner to establish the right of the certificate owner or rights
and obligations. Therefore, there is a direct right associated with
Sukuk.
• Investment Sukuk represent a common share of ownership of assets
available for investments which generate a return to the Sukuk
holders.
• Investment Sukuk are issued on the basis of Shari’ah compliant
contracts; therefore, the return is legitimate and permissible from
Shari’ah perspective because there is no element prohibited by
Shari’ah such as riba.
• Sukuk are tradable Shari’ah compliant capital market products pro-
viding medium to long-term fixed or variable rates of return. The
tradability of the Sukuk in the secondary market make them very
liquid instrument.
• Sukuk are assessed and rated by international rating agencies which
investors use as a guideline to assess the risk and return parameters
of a Sukuk certificate.
• Sukuk provide regular periodic income streams during the invest-
ment period with easy and efficient settlement and a possibility of
capital appreciation of the Sukuk.
• The owners of these certificates share the return as stated in the
subscription prospectus and bear the losses, each according to his
respective share of ownership.
Al-Amine (2012) has mentioned some benefits of Sukuk too that can be
summarized as follows:
• Sukuk is a new source of funding for both sovereign and corporate

entities including multinational corporations, multinational devel-
opment institutions, and government agencies. The role of Sukuk
is multifaceted whereby it meets different funding needs from large
developmental and infrastructure projects to the needs of busi-
ness expansion. This is of special importance for the economies in
emerging markets.
• Sukuk offers a solution to one of the core problems in Islamic
finance that has hindered its growth; the problem of liquidity
management. Sukuk is believed to be a long-term solution for the

liquidity management of Islamic banks through a range of maturity
instruments.
• It is the cornerstone for the development of deep Islamic capital
markets. Whereas funding from an Islamic bank may not be possible
always, Sukuk can be issued under relevant Shari’ah principles.
• As more and more Sukuk are issued, it will create a platform for
the trading of Sukuk in which case the Sukuk holders would not be
worried about the liquidity of the instruments they hold.
• Many Islamic institutions have great surplus cash that is waiting to
be tapped by new financial instruments that are Shari’ah compliant.
Sukuk offers one such opportunity.
• In Middle East in particular and many other jurisdictions in general,
there is a need for an active bond market to strengthen the capital
market and consequently the overall economy. Indeed, Sukuk can
play a very vital role in the realization of this dream.
• Sukuk market is broader than the conventional bond market in the
sense that prominent international conventional banks have been
very active in Sukuk issuances. Institutions like HSBC, Citigroup,
Barclays, UBS, BNP Paribas, and Deutsche bank have acted as lead
managers for different Sukuk issues. This denotes that Sukuk have
become a part of the global financial landscape and joining of hands
by leading conventional institutions will soon lead to a greater inte-
gration of Islamic finance in the global markets.
• Sukuk market is broader in one other dimension too. These instru-
ments can be offered to both Muslim and non-Muslim investors
alike. Thus, it not only satisfies the Muslims’ needs to adhere to
their religion, it also appeals to conventional investors in economic
terms.
• Sukuk provides a new source of funding for countries that are
involved in offering this new instrument. This source is vital for
infrastructure development and utilization of the funds for local
economy’s benefit.
• Investors that invest in Islamic instruments are in need to diversify
their investment portfolio. Sukuk provide them a chance to do this
diversification in a complaint manner.
• The merging Muslim economies of the world have a bright pros-
pect in terms of Sukuk. Sukuk offer them excellent opportunities to
manage their capital requirements in a way that is not contradictory
to Islamic teachings and at the same time fulfills the needs of global
investors.
• The growth of Sukuk will lead to the growth of many Islamic insti-
tutional investors including Takaful operators, Shari’ah compliant
companies and Islamic assets managers.
• The competitive prices of Sukuk are yet another bright prospect.
When compared with fund-raising in conventional market, Sukuk
market offers 10–20 basis points lower than conventional bonds.
This is exactly the reason that Sukuk are oversubscribed in a range
of two to thirteen times continuously.
1.4 Sukuk Versus Bonds

A bond is a contractual debt obligation whereby the issuer is contractu-
ally obliged to pay to bondholders, on certain specified dates, interest
and principal, whereas Sukuk holders claim an undivided beneficial own-
ership in the underlying assets. Sukuk holders are entitled to share in the
revenues generated by the Sukuk assets as well as being entitled to share
in the proceeds of the realization of the Sukuk assets. The claim embod-
ied in Sukuk is not simply a claim to cash flow but an ownership claim
and it confers a beneficial interest to the holder in terms of holding a
proportional ownership of the underlying asset as well as the income that
it generates. The Sukuk holder also assumes all rights and obligations for
the maintenance of the asset.
The relationship between the parties in Sukuk is governed by the rel-
evant contracts selected by the obligor upon the issuance of Ijarah such
as sukuk, mudarabah, etc. Therefore, the parties can have a partnership
relationship if the contact is musharakah, or lessor and lessee relationship
if the contract is ijarah. Hence the certificates holders who are the inves-
tors stand as the owners of the underlying asset, whereas in bonds the
relationship between the certificate holders and the issuer is creditor and
debtor. The liability of the issuer investors depends on the performance
of the underlying asset; in ijarah, for example, it depends on the demand
and supply of the leased asset in the market, whereas in bond there is
no liability. The return in Sukuk is either fixed or floating depending on
the selected structure by the issuer; for example, the return is fixed if the
structure is based on ijarah and not fix if the structure is equity-based,
whereas the return of the bond is always fixed according to the agreed
fixed coupon upon the issuer of the bond.
The profit is not guaranteed in Sukuk. Therefore, there is a possible

loss in the Sukuk, because the profit and the success of the business are
based on the performance of the underlying asset. The profit or loss do
not depend on the ability of the issuer to pay, but on the ability of the
underlying asset to sustain, whereas in bonds there is no loss expected,
because the return is guaranteed where the issuer pays the principal
along with the fixed profit regardless of the performance of the under-
lying asset of the bond. The certificate in Sukuk is an evidence of own-
ership. Therefore, Sukuk issuance results in transfer of the ownership of
the asset from the issuer to the investor. The asset will be held by the
SPV or the trustee to secure the interest of the investor, whereas in bond
issuance there is no process of transfer of ownership and the certificate
demonstrates an evidence of debt only.
1.5 The Common
Features Between Sukuk and Bonds
Beside the difference between Sukuk and bond, there are common fea-
tures between them as follows:
• Both Sukuk and bond represent a certificate of investment

• Certificate holders of Sukuk and bonds are investors
• Both Sukuk and bond represent financial instrument for investment
in capital market
• Both represent a means to raise capital
• Both generate return
• Ijarah sukuk and bond have fix income return
• Both Sukuk and bond are subject to rating agency
• Both are subject to default
• Both are subject to restructuring
1.6 Sukuk Versus Shares

There is a close relationship between Sukuk and shares. A brief compari-
son between them is highlighted as follows:
A share represents a single unit of ownership in a company, organ-
ization, or any other entity. Shares are normally part of joint stock
Company listed on the stock exchange where the company divides its
capital into shares which are offered to the public and investors to raise
capital. The issuance process is governed by terms and conditions that
determine the relationship between the shareholder/stockholders of
the shares and the company in terms of rights and obligations and other
related matters. Thus, a share is an indivisible unit of capital, expressing
the proprietary relationship between the company and the shareholder.
The denominated value of a share is its face value: the total capital of a
company is divided into a number of shares.
Sukuk represent a certificate representing ownership of the underly-
ing asset whereas shares represent a certificate of ownership in company
listed on the stock exchange. With regard to ownership, both Sukuk and
shares claim ownership by virtue of the certificate which demonstrates
this fact. However, Sukuk are issued for sophisticated investors which
are the various financial institutions in the market place, whereas shares
are issued for both sophisticated investors and normal investors such
as individuals which represent the mass public and retails market. As
for the return in case of Sukuk, it is determined according to the per-
formance of the underlying asset such as project whereas in shares the
return is determined by the performance of the company. If the company
performs well and generates good business, it will have impact on the
shareholder when the dividends are distributed. From the relationship
perspective, both Sukuk holder and shareholder are investors looking for
return. However, in case of share the underlying contract is governed by
musharakah, whereas is Sukuk there are different types of contracts used
like ijarah, mudarabah, musharakah, tawarruq, etc. Hence the shares
and Sukuk meet in the same contract and are governed by the same
Shari’ah rules.
With regard to liability, both Sukuk and shares depend on the per-
formance of the underlying asset. In Sukuk the underlying asset is the
specific project and in shares it is the company listed in the stock With
regard to return, in Sukuk it can be fixed if the contract used is ijarah,
and can be floating in case of musharakah contract, whereas in shares
it is floating because shares are issued based on musharakah contract.
However, there are some Shari’ah mechanisms that have been imple-
mented to smoothen the return through reserve created for that pur-
pose. This reserve will smoothen the return and convert it from floating
to fix. However, despite those mechanisms, the return of Sukuk can
be offered on both options depending on the contract selected for the
issuance, whereas for shares the assumption is that return is always float-
ing because the dividend distribution is driven by musharakah rules
based on the performance and profitability of the company in the real
market place.
1.7 Sukuk Versus Securitization

In addition to the discussion above, securitization in mainstream
finance is the process of pooling different types of contractual debt
such as the debt of mortgage, car loan, credit card loan, etc., and sell-
ing them as consolidated debt such as bond to potential investors. The
investors will be the holders of the bonds who are entitled to receive
the principles and the interest regularly. In the Securities Commission
(SC) report 2002, asset securitization can broadly be defined as the
process whereby loans, receivables, and other financial assets are
pooled together, with their cash flows redirected to support payments
on securities issued to purchase such assets. These securities, which are
generally referred to as “asset-backed securities” or “ABS” are issued
and sold to investors for the benefit of the owners of the assets, who
utilize securitization to source financing for their business activities.
(Report on asset securitization in Malaysia, the way forward for the
Malaysian market, 2002.) According to SC, securitization transaction
means an arrangement which involves the transfer of assets or risks
to a third party where such transfer is funded by the issuance of debt
securities or Islamic securities to investors. Payments to investors in
respect of such debt securities are principally derived, directly or indi-
rectly, from the cash flows of the assets. (Guidelines on the offering
of asset-backed securities, 2004.) On the other hand, Sukuk is a pro-
cess of liquiditation of assets such as building and sell it to the inves-
tors who will assume the ownership of the underlying asset and entitle
respectively to get return such as rental (in case the asset is leased out
to third party). The difference between Sukuk and secuitization is
that Sukuk are processed in such a way that avoid the Shari’ah non-
compliance elements such interest, or selling pure debt at discount,
unless it is mixed portfolio based on specific ratio between the debt
and asset. The Sukuk benefited from the securitization process in
Shari’ah compliance manner to expand the boundary of the Islamic
financial market.
1.8 Conclusion
Sukuk has been regarded as important instrument in ICM, it is defined
as certificates of equal value representing ownership over an underlying
asset. Sukuk represent common shares and rights over the underlying
assets or over usufruct (benefits derived from an underlying asset) and
services. Sukuk has some similarities with conventional bonds, shares and
securitization, however Sukuk still have its own features that distinguish
it from bonds.
References
AAOIFI. (2010). Shariah Standards. Accounting and Auditing Organization for
Islamic Financial Institutions, Kingdom of Bahrain.
Al-Amine, M. A. (2012). Global Sukuk and Islamic Securitization Market:
Financial Engineering and Product Innovation. Leiden, NL: Koninklijke Brill
NV.
CHAPTER 2
An Overview of Islamic Capital Market

(ICM) and Sukuk Industry
2.1 Introduction
Islamic capital market (ICM) is a market that is free from non-Shari’ah
compliant activities such as usury, gambling, and uncertainty. It is a mar-
ket where shares, stocks, and permissible financial instruments are being
traded through buying and selling according to the principles of Islamic
law. The ICM plays a significant role in the development of the economy.
In respect of that, a lot of development has taken place in the Muslim
and non-Muslim countries. This market deals with a very important
class of products which is Sukuk (securities) that are certificates which
represent the value of an asset or usufruct. The ICM does not function
actively without the issuance of Sukuk and their trading in the primary
and secondary market. Sukuk industry plays an active role in ICM activ-
ities; thus Sukuk are complementary instruments beside other products
and instruments offered in ICM. This is to provide a comprehensive
marketplace that has wider range of products and instrument based on
Shariah compliance for the investors who seek Shariah compliant invest-
ment because ICM products should differentiate itself from conventional
ones in term of transactions and activities that are carried out in the
market.
Today, ICM is growing very fast due to Muslim population that rep-
resents 24% of total population of the world; this size can be estimated
around 1.5 billion people with respect to the total population of the
world which is around 6.3 billion. This growing awareness is also due
© The Author(s) 2018 11

A. Lahsasna et al., Forward Lease Sukuk in Islamic Capital Markets,
https://doi.org/10.1007/978-3-319-94262-9_2
to demand of Muslim investors to invest their wealth in the investment

funds that are in conformity with the principles of Islamic law on the
global scale. Moreover, ICM is flourishing all over the world because of
increasing wealth in hands of Muslim investors who are participating in
corporate and business activities. This is obvious in Islamic funds which
stand at USD1.3 trillion in global financial institutions; on the other
hand, Islamic financial market is at USD230 billion. This development
of ICM can also be due to gathering information from various interna-
tional Islamic organizations to examine and promote alternative ICM
for Muslim investors. These Islamic organizations include the Islamic
Financial Services Board (IFSB), the International Islamic Financial
Market (IIFM) and the Accounting and Auditing Organization for
Islamic Financial Institutions (AAOIFI). One of the factors that make
ICM distinguished from other markets is that ICM is an unlimited mar-
ket in which anyone can participate to create depth and breadth in global
Islamic financial market in order for it to work as a parallel market to
conventional one. Presently, there are more than 250 Islamic financial
institutions which are carrying out their activities in around 75 coun-
tries all over the world. These institutions manage more than 100 assets
of Islamic equity funds which are more than USD5.0 billion (Bursa
Malaysia, Islamic Capital Market 2011).
From the foregoing, one can conclude that ICM is an axiomatic mar-
ket in Islamic financial market all over the world. It plays a crucial role
in development of economy of a country particularly a Muslim country
because of the increasing wealth in the hands of Muslim investors who
are seeking a market which is free from any activity, which is prohibited
by Shariah to invest their wealth. Therefore, ICM and Sukuk industry are
working together; without Sukuk transaction in the market the activities
of the market do not perform in a comprehensive manner, while without
ICM Sukuk industry cannot develop its instruments in order to meet the
needs of market and investors.
2.2 General Introduction
to Islamic Capital Market (ICM)
Today, the growth of economy of any Muslim country is based on its

ICM force. It works as a parallel market to conventional capital market
for investor capital seekers and capital providers who want to invest and
transact in the market in a Shariah compliant manner. In addition to
2 AN OVERVIEW OF ISLAMIC CAPITAL MARKET (ICM) AND SUKUK INDUSTRY 13
that, ICM extends its scope of activities which are not confined to equity
and securities only but to the extent of some financial instruments that
have the same proceeds as conventional instruments, such as exchange-
traded funds, derivatives, swaps, unit trusts, real estate investment trusts
(REITs), commodity funds, and a range of Islamic indices and index
products. These instruments carry out their activities in the active pri-
mary and secondary markets that deal with the instruments which are in
conformity with the principles of Shariah (Noordh 2002).
It should be noted that ICM produces similar products to conven-
tional capital market products in the form but they are Shariah com-
pliant in substance, which means that the ICM products are governed
by Shariah rules and principles which make them in accordance with
Shariah. The ICM is not confined or limited to Muslim capital seekers
and investors only but is open to non-Muslim as well, whether individu-
als or institutions.
2.2.1 Definition of Islamic Capital Market

Capital market is a market which deals with long-term debt instruments
and shares that are issued by companies or government. It is defined as
a market where debt and equity are traded in order to provide an ave-
nue for the investor or to increase capital and provide financial needs
for a project. Each instrument in that market entitles the shareholders
and issuers a bundle of rights and obligations (Kamil 2007). Therefore,
ICM is a market where the activities carried out in the market do not
contradict the principles of Islamic law and the transactions in the mar-
ket are free from any element which is not in conformity with the prin-
ciples of Islamic law, such as the elements of riba, maisir and gharar
(Noordh 2002).
From the above definitions, conventional capital market can be
defined as a market which deals with any kind of instrument as long as it
can bring benefit to shareholders and issuers. This is unlike ICM which
does not deal with any element which is not in accordance with the prin-
ciples of Islamic law. The activities carried out in the market should not
contain any element or transaction which is not approved by Shari’ah.
Therefore, the transactions concluded are expected to be in compliance
with Shari’ah rules whether dealing with debts, stocks or other busi-
ness activities. The Shari’ah boards have the mandate to supervise the
products and instruments offered in the ICM to ensure their Shari’ah
compliance, the mandate of the Shari’ah board is both at the institu-

tion level and the regulator level such as the Securities Commissions in
Malaysia.
2.2.2 Types of Islamic Capital Market

The activities of both Islamic and conventional capital markets are car-
ried out in two markets. These are primary market and secondary mar-
ket, which represent the Islamic Capital Market place for both Islamic
and conventional, as both operate side by side:
1. Primary market is a market where a company or government issues

their securities to provide or increase capital for their compa-
nies or projects. According to Frank & Franco the primary mar-
ket involves the distribution to investors of newly issued securities.
(Frank & Franco, 2009).
The primary market plays a key role in the economic activities of
the country by providing platform for investment and liquidity
activities through the issuance of securities and its trading. The
wealth accumulated through saving will be invested in the capital
market place in the various instruments and products.
Among the prominent features of the primary market are as follows:
(a) Primary market is considered as one of the important platform
to invest the national saving funds.
(b) Primary market is regarded as a source of funds for government
and corporate.
(c) Primary market is the platform for issuers of securities.
(d) The primary market is platform that creates opportunities for
investment and innovation of products and instrument for
Islamic capital market.
(e) The two markets primary and secondary market are applicable
for conventional Capital market and Islamic capital market.
Hence, the primary market plays a key role in providing capital for any
project or company. It is also the main source for movement of saving
funds into investment funds.
2. Secondary market is a market where securities issued by a govern-

ment and company in primary market are traded. The provides
liquidity through the trading of the securities that have been issued
in the primary market. According to Frank and Franco the key dis-
tinction between a primary market and secondary market is that in
the secondary market the issuer of the asset does not receive funds
from the buyer, rather, the existing issue changes hands in the sec-
ondary market and funds flow from buyer of the asset to the seller
(Frank & Franco, 2009).
In short, when a market is organized, it is called Bursa where companies

under this organization trade their securities and shares. In other words,
Bursa is an organized market where securities, shares and bonds are
traded under supervision and control of an organization. Both Islamic
and conventional capital markets conduct their commercial transactions
on the Bursa under rules and regulations of an organization that control
the movement of activities carried out in the market (Bursa). However,
the difference between ICM and conventional capital market is the issue
of interest charge. In ICM, the transactions are based on risk sharing.
There is no guarantee for principal amount or profit, while in conven-
tional capital market, the transactions are based on interest. The principal
amount and profit are guaranteed.
ICM not only plays a significant role in economic growth of a coun-
try but also plays the same role in movement of saving funds and pro-
viding capital for capital seekers as well as the role of financing projects.
Without capital market, it is difficult to finance big projects which an
individual would not be able to provide for its capital. It is, therefore,
obvious that capital market plays a prominent role in the economic
development and the growth of capital of a country in general. ICM is
growing rapidly in Muslim countries due to the various instruments pro-
vided for market players and investors, which ensure Shariah compliance
products and services.
2.2.3 Islamic Capital Market in Malaysia

Malaysia is pioneer in Islamic finance particularly ICM. It has contrib-
uted to spurring the growth of ICM not only at national level but also
at international level. This is due to the efforts of Malaysia International
Islamic Financial Center which plays a crucial role in regulations and
development of ICM which helps in rapid growth of the ICM. This is
also due to its Shari’ah compliant products and services collecting from
equities, unit trusts, exchange-traded funds, structured products, deriva-

tives, fund management and stocks broking services that have increased
in depth and breadth of the instruments of ICM in Malaysia. Currently,
this contribution of Malaysia to ICM has been recognized by global
financial market. This is because Malaysia’s ICM instruments and deriv-
atives have potential area of a high growth due to Bursa Malaysia’s inno-
vation for ICM products to meet the demand of investors and need of
the markets (Bursa Malaysia 2008).
In a nutshell, one can say that Malaysia has gone far ahead of other
countries in terms of ICM infrastructure due to the support from its
government to provide the impetus for the growth of ICM in the coun-
try. In addition to this, Malaysia has pioneered in ICM for the following
reasons:
1. Malaysia is the first Muslim country which established the first

Islamic unit trust in 1993 which is called Arab Malaysian Ittikal.
2. Malaysia is the first Muslim country which has a full-fledged
Islamic stock broking company which was established in 1994 and
called BIMB Securities Sdn Bhd.
3. Malaysia is the first Muslim country which has its own full-fledged
department of Securities Commission which was established in
1995 to regulate and monitor the activities of ICM by forming
special Shari’ah Advisory Council (SAC) in 1996 to guide the mar-
ket players to invest their securities in accordance with the princi-
ples of Islamic law.
4. Malaysia is an international hub for ICM; thus, its Minister of
finance has launched in 2001 the Capital Market Master Plan with
13 recommendations which were formulated to make Malaysia the
center of ICM activities.
5. Malaysia is the first Muslim country which introduced in 2001 the
first global corporate Sukuk which brought a paradigm change in
the IIFM.
6. Malaysia is the first country which introduced in 2002 the first
sovereign Sukuk, which was subscribed more than twice of normal
Sukuk subscription.
7. In 2004 Federal Budget, Malaysia implemented a comprehensive
incentive package for Islamic securities which has similar function
to conventional securities in order to promote ICM instruments
(Bursa Malaysia 2011).
It can be said that the development of ICM in Malaysia is different from

the development of ICM in other countries around the world. This is
because Malaysia has special concern and support not only from market
players and investors but also from the government of Malaysia in order
to make Malaysia a hub of Islamic financial market particularly ICM
which plays an important role in the growth of economy of any coun-
try. This is obvious in Malaysia’s current economic development which
is due to its concern regarding innovation of Islamic financial products
especially the products of ICM which have specific criteria compare other
countries’ capital market products.
One of the most popular ICM instruments is Islamic mutual fund
(Islamic unit trust fund) which is growing in Malaysia very fast as com-
pared to other countries. This is evident in the statement of Failakah
advisers that there are 377 Islamic mutual funds operating all over
the world. Malaysia dominates more than one-third of these funds. In
December 2008 there were 149 Islamic mutual funds operating in
Malaysia based on the Securities Commission of Malaysia. Furthermore,
most of the Islamic mutual funds all over the world have emerging mar-
kets and Malaysia provides the trend movement of Islamic mutual fund
all over the world. This is evident from examination of Islamic mutual
fund industry worldwide (Mansor and Bhatti 2011).
Malaysia is considered as a hub of Islamic financial markets in the
world especially ICM which is presently growing in Malaysia rapidly.
This is obvious in the support of government of Malaysia for ICM
instruments to boost in Malaysia without contradicting the principles of
Islamic law. Its purpose is that global Muslims investors and capital seek-
ers can invest their wealth in Malaysia without any difficulties because the
government of Malaysia has issued rules and principles that allow foreign
investors to invest their funds in any Islamic financial Institution that
carries out its activities in Malaysia. Besides that, Malaysia is pioneer in
Islamic financial products because it has been embarked in Islamic finan-
cial system for more than 30 years.
2.2.4 Challenges for Islamic Capital Market in Malaysia

In Malaysia, ICM is facing several challenges. One of these challenges
is maintaining the Shari’ah compliant status in products and services
offered in the market. In ICM the products and services must be based
on Shari’ah rules and principles. This requirement is not applicable to
conventional finance; hence this challenge is not relevant to the conven-

tional finance too.
Some sensitive products require close Shariah monitoring such as
hedging tools in Islamic financial instruments particularly capital mar-
ket. Shari’ah based hedging tools are needed in ICM if they are prop-
erly regulated according to the principles of Islamic law. This can be
done by having proper trading, clearing, and settlement systems to
conduct ICM transactions which are based on the clear provisions that
are not in conflict with the principles of Islamic law. Based on this,
Malaysian ICM has tools of hedging which are Shari’ah compliant
instruments that are transacted in the market based and structured on
real underlying asset (Innovating for the future, 2011) unlike conven-
tional capital market instruments which are based on the pace of market
and speculation only.
Shari’ah compliant financial instruments need to take into considera-
tion three factors in order to transact the instruments of ICM in accord-
ance with the principles of Shariah and mitigate the challenges that they
are facing. These are as follows:
1. The same principles that regulate the market should apply to all
users of financial products in the market either in ICM or conven-
tional one. This is because Malaysia applies common regulatory
principles or mechanisms for both Islamic and conventional finan-
cial products based on the objectives and regulatory principles of
International Organization of Securities Commission.
2. Innovation of the market instruments must be based on Shari’ah
compliant instruments that are acceptable in the market. In order
to do so, the market players must be consistent and clear in pro-
nouncing the instruments which are in conformity with the princi-
ples of Islamic law (Shari’ah compliant), as against those which are
not in conformity with the principles of Islamic law, so that they
can meet the needs of the market and investors. Otherwise, they
may jeopardize the ICM instruments that are in accordance with
the principles of Islamic law. Therefore, capital market players and
Shari’ah advisers must work closely together in order to foster a
great harmonization in the methods and principles of regulation of
ICM. This can be done by applying Islamic accounting standards
and Shariah standards to ensure the unique aspects of Islamic

financial instruments, particularly capital market instruments.
3.
Cost competitiveness and efficiency based on the principles of
Shariah which are crucial elements in the development and inno-
vation of ICM instruments should be applied in the market. This
is because, at the end of the transaction, consumers may inquire
the market players about these elements. The growth of ICM is
on long-term investment instruments, which depends on how far
the market players can address the need of investors. Therefore, all
participants in the investment arena should observe the principles
of Islamic law in the practice of ICM instruments. The infrastruc-
ture and capacity building of market instruments are two impor-
tant factors that can promote cost competitiveness and efficiency
of transaction in ICM. Malaysian Sukuk market adopts the same
conventional legal concept of debenture. As a result, this permits
the market to adopt structures which involve elements of equity
participation in the market (Innovating for the future, 2011).
To conclude, one of the most important challenges that ICM faces in

Malaysia is to maintain Shari’ah compliance in products. This is because
it is not allowed in Shariah to carry out any element in the market which
contradicts the principles of Islamic law.
2.3 General Overview on Sukuk Market in Islamic

Finance
Currently, Islamic economy and capital market development are based
on the Sukuk issuance wherein government and companies are issuing
Sukuk to enhance their financial activities. Sukuk are needed for invest-
ment all over the world; thus, Sukuk market plays a crucial role in devel-
opment of economy of any country. This is because Sukuk are flexible
financial instruments to finance big projects which individuals do not
afford to finance. Today this is obvious in the global Sukuk market which
is hub for investing Sukuk and providing capital for commercial projects
to promote the welfare of public in a country. Islamic financial markets
will be stagnant if there is no issuance of Sukuk in capital market. This is
obvious in Malaysia’s Sukuk market, which is flourishing with all types of
Sukuk.
2.3.1 Sukuk Market from Shari’ah Perspective

Sukuk is a very prominent market that opens an avenue for invest-
ment. There are some Shari’ah rules that have been stipulated to ensure
the Shariah compliance status of Sukuk. These rules are listed in the
AAOIFI Shariah Standard No. 17. However, the key issues in Sukuk
from Shariah perspective has been incorporated in AAOIFI pronounce-
ment 2011. The pronouncement emphasized on six recommendations
for Sukuk structures to be in line with the Shari’ah principles. These rec-
ommendations are as follows:
1. For Sukuk in order to be tradable in accordance with the principles

of Shari’ah, the Sukuk holders must own the Sukuk and entitle to
all rights and obligations that are related to ownership over the real
asset that Sukuk represent, either it is tangible asset or usufructs
or services that are possessed and disposed legally. The issuer or
manager of the Sukuk must register them in the names of Sukuk
holders as owners of the Sukuk. He must not keep them as his own
assets, and register them in his name in his books.
2. It is permissible for financial entity that wants to sell all its assets or
portfolio to trade the debts that incurred incidentally or indirectly
to a tangible asset or usufruct. However, it is not permissible for it
to trade the Sukuk that represent revenue streams or debts.
3. It is permissible for the issuer (manager) of Sukuk to establish a
reserve fund in order to cover a shortfall to the possible extent pro-
vided that the same must be mentioned in the prospectus of the
Sukuk. On the other hand, it is not permissible for it to undertake
to give loans to the Sukuk holders in case the actual earnings fall
short of expected ones, regardless of whether he acts as a manager
of investment or partner or an agent of investment.
4. It is permissible for the manager of investment of the Sukuk to
agree with Sukuk holders to purchase the Sukuk at market value at
the time of purchase in conformity with the principles of Shari’ah
for partnership and modern partnership, and on the subject of
guarantees. Nevertheless, it is not permissible for him to agree with
the Sukuk holders to purchase the asset at the face value at the time
the Sukuk are extinguished at the end of their tenures.
5. It is not permissible for the lessee in Sukuk al-Ijarah to agree to
purchase the leased assets at their nominal value at the time the
Sukuk are extinguished, if he is partner of investment or manager

of investment or agent.
6.
The liability of Shari’ah supervisory boards is not over at issu-
ance of the fatwa on the structure of the Sukuk. Therefore, they
should review all contracts and documentation that are related to
the actual transaction of the Sukuk, and look at the ways that these
are applied, so that they can ascertain that the operation is com-
plied with the principles and guidelines of Shari’ah at every stage
(AAOIFI Shariah pronouncement 2010).
In view of the above-mentioned recommendations, there are key Shariah

concerns that should be observed in Sukuk at the stage of issuance and
trading to ensure Shariah compliance. The issuer of Sukuk must transfer
ownership of assets to Sukuk holders and record this transfer of owner-
ship in its books, and must not keep them as its own assets. This means,
in case of Sukuk al-Ijarah there must be written certificate that repre-
sents real ownership of leased asset and not only the right to receive the
rent. Ijarah sukuk holders will share in risk bearing of the assets price
and ownership of cost as well as share in rent of the asset by leasing it
to any user. If there is any loss to the asset each Sukuk holder will suffer
the loss according to the portion he owned in the asset. This is based on
Islamic legal maxim “Al-Ghorm bil Ghonm” (no reward without risk) and
the hadith of the Prophet (S.A.W) “al-Kharaj bi al-Daman” (any benefit
must be accompanied with liability of risk).
In view of the foregoing, Sukuk are structured in order for it to be in
compliance with the Islamic law. The transfer of ownership of the under-
lying asset must be done and registered in the name of the investors and
not on merely registration to receive right on the asset. When the sub-
scription is closed by the issuer and the certificates are issued, that would
be regarded as evidence of ownership on the underlying asset. The asset,
therefore, would no longer belong to the issuer. In case of the insol-
vency of the issuer, the Sukuk holders can still recover their assets but if
there is a damage to the asset it is only the investors that would bear the
loss according to the portion being owned by them. Everyone is bear-
ing the loss according to his portion in the undivided underlying asset
that Sukuk represent. The Sukuk holders must be liable for any damage
or loss that may happen to the underlying asset in order to deserve the
profit derived from the investment of the Sukuk.
2.3.2 Malaysian Sukuk Market

Currently, the Malaysian Sukuk market is considered as the biggest
global Sukuk market with 39% Sukuk outstanding which is equal to
USD80.2 billion. However, at the end of 2008, the size of Malaysian
Sukuk market stood at 36% which is equivalent to RM211 billion of the
total of the global Sukuk market. This is due to its Shari’ah compliant
Sukuk structure that it provides to investors who are seeking Shari’ah
compliant products to invest their wealth in. In 2001, the growth of
issuances of private Sukuk reached 24.1%. In 2004, musharakah invest-
ment model of Sukuk issuance was used as the major Shari’ah principles
for Sukuk investment as compared to bay bil thaman al-ajil (BBA). At
the end of 2008, issuances of public Sukuk represented a size of 24.6%
which is equal to RM55.6 billion of total Sukuk outstanding (Bank
Negara Malaysia 2009).
Presently there are few Sukuk market players which are carrying out
their activities in Malaysia either in full-fledged shape or in windows
form. These market players can be domestic players or foreign players
because it is allowed for foreign market players to operate their finan-
cial instruments in Malaysia in order to promote Islamic financial instru-
ments in Malaysia particularly Sukuk market instruments. For this reason,
Malaysia extends to be a leader of present issuance for the existence of
outstanding Sukuk in order to meet the needs of investors and increase
their participation in the Islamic financial market especially Sukuk mar-
ket. Based on these facts, Malaysia contributes to a vibrant and com-
prehensive development for Islamic financial market instruments (Bank
Negara Malaysia 2009). The central bank of Malaysia (BNM) has issued
regulatory framework for ICM and conventional one to conduct their
activities accordingly, in order to harmonise the principles and rules
that govern both Islamic and conventional Sukuk markets so that Sukuk
market can be alternative to conventional bonds market wherein both
Islamic investors and conventional ones can invest their wealth within the
parameters of the principles of Islamic law.
In addition to that, Malaysian Sukuk market was the first market
wherein the global corporate Sukuk was introduced which is the world’s
largest redeemable corporate Sukuk which is equivalent to USS4.7 bil-
lion. It is also the market wherein the world’s first Sukuk products are
traded on main board of exchange such as the world’s first healthcare
REIT (Al-‘Aqar KPJ) and the world’s first plantation Sukuk REIT
(Al-Hadharah Boustead). This is due to the encouragement of govern-

ment of Malaysia for Sukuk Market in order to enhance ICM instru-
ments particularly Sukuk market instruments. The government provides
some facilities for market players to attract investors to invest their funds
in Sukuk market, so that they can finance a project that can benefit the
public at large. In this regard, the government of Malaysia exempted
income tax on issuance of Sukuk and established SAC to oversee the dif-
ferent structures of Sukuk issuance in the market so that the structure
will be in accordance with the principles of Shari’ah (Bursa Malaysia
2008).
The government of Malaysia gives support for Sukuk market and
motivates the wealthy people to invest their wealth in the market, so that
they can provide job opportunity for the unemployed in the country.
Malaysia’s Sukuk market plays a crucial role not only at national level but
also at international level. This is due to encouragement of Malaysia for
Sukuk market and market players in order to make Malaysia as a hub for
global Sukuk market. This is obvious in Malaysia Islamic financial market
all over the world as Malaysia is the only Muslim country which names
its Sukuk market “Bursa.”
2.4 The Growth of Sukuk Industry and Its Challenges

in the Current Global Financial Market
There is no doubt that Sukuk industry in global Islamic financial mar-

ket is growing. Notwithstanding currently, this growth is facing some
challenges in the market. Both the growth and challenges are briefly dis-
cussed below:
2.4.1 Growth of Sukuk Industry

Currently, the Sukuk industry is growing rapidly all over the world par-
ticularly in global Islamic financial market. Without trading the Sukuk
in market, the global financial market will not grow in the manner that
can fully develop its financial instruments or products. Thus, investing
in Islamic banking alone is not sufficient for Muslims investors, capital
seekers, and providers to satisfy their needs. Sukuk industry is not grow-
ing only for its extensive products but rather for its sustainability of the
industry. At the same time, Sukuk industry plays a crucial complementary
role to the Islamic banking and Takaful industry. The Sukuk industry is
growing and operating rapidly at global level to meet the need of mar-
ket because of its various instruments of investment that it provides for
the market players and investors (Grewal 2007) who are seeking Shari’ah
compliant instruments to carry out their financial activities.
In 2006, the issuance for Sukuk globally stood at US$16.81 bil-
lion, which brought the total amount of global Sukuk outstanding to
US$57.4 billion. This is due to its fundamental structures that provide
an opportunity for Muslim investors to invest their funds in the instru-
ments that are in conformity with the principles and rules of Islamic law.
In addition to that, current Sukuk structure has developed from the tra-
ditional BBA structure to provide further transactional structures. For
instance, transaction of Sukuk al-istisna, ijarah, mudarabah, mushar-
akah or their combination finance a big project which an individual can
not afford to finance. Besides, the products of the industry are indige-
nous Shari’ah compliant and profit and loss sharing between investors
and issuers. At the same time, it satisfies all requirements of Shari’ah and
remains sufficient, competitive, and effective in terms of cost as com-
pared to conventional products. This is because the industry provides
perpetual instruments of investment to catch-up conventional instru-
ments to forward its financial instruments or products in global finan-
cial market and improves the quality of its industrial products in terms of
diversity and scope of investment (Grewal 2007).
Moreover, in 2007 the industry has seen robust growth in global
Islamic financial markets due to its need for various Islamic financial
institutions to share in the industry. The industry has also seen, in terms
of diversity and scope, qualitative improvement because of its regula-
tion that has extended to make the industry become strong in global
Islamic financial markets. It is also because of its various principles and
rules which are based on the market perspective to meet the need of new
participants in the industry and development of global Islamic financial
markets. The growth of the industry can also be due to its originality
and management of asset as well as the prospects that the products of
the industry are not contradicted by the principles of Islamic law (Grewal
2007).
The Sukuk maintain its positive trend of issuance at the global level
in different denominations. According to Sukuk report, the total global
issuances amounted to USD88.3 billion in 2016. The global Sukuk issu-
ance has increased from USD60.7 billion in 2015 to USD88.3 billion
in 2016, around 44% jump in volume. The increase in volume during

2016 was due to steady issuances from Asia, GCC, Africa, and certain
other jurisdictions while Malaysia continues to dominate the Sukuk mar-
ket, though share of countries like Indonesia and Turkey increased as
well (Sukuk Report, IIFM 2009). The global demand of Islamic finance
including ICM Shariah compliance products will keep the momentum of
the Sukuk demand (Fig. 2.1).
The trend of Sukuk issuance will keep increasing, at the international
market, the total international Sukuk issuances stood at USD31.56 bil-
lion in 2016 which translates into an increase of USD10.68 from 2015
level of USD20.88 billion (Sukuk Report, IIFM 2009) (Fig. 2.2).
According to Sukuk report, the increase in Sukuk issuances was mainly
due to higher short-term Sukuk issuances by IILM and also by quasi-
sovereign and sovereigns (Sukuk Report, IIFM 2009).
The growth of Sukuk industry plays a very important role in cur-
rent global Islamic financial market. Thus, without Sukuk transaction
in the market, the pace of the market will decrease, and investors and
market players may not be able to carry out their financial activities in the
market. Therefore, without Sukuk industry in IIFM, there will be hard-
ship not only on the market players but also on the investors and capital
providers who are seeking the rapid profit in the short-term investment
products. In a nutshell, it can be said that Sukuk industry is growing all
over the world due to its various mechanism and financial instruments to
finance any project either governmental or private to meet the needs of
Fig. 2.1 Global Sukuk issuances: Sukuk report, IIFM (2009)

Fig. 2.2 International Sukuk issuances: Sukuk report, IIFM (2009)
market and its players. The growth of Sukuk industry in present global
scale is due to huge amount of wealth in the hands of Muslims business-
men around the world.
2.4.2 Challenges of the Growth of Sukuk Industry

Presently the growth of Sukuk industry is facing several challenges in
the global financial market. The most important challenge that the
industry faces nowadays is its inculcation of the industry awareness and
understanding of its various instruments of investment opportunities
that it contributes to various stages of progression of Islamic finance.
Mechanism of the industry is like other financial mechanisms which are
at emerging stages of development; nevertheless, the main challenge that
the industry faces is its long-term investment and ensuring sustainability
of the industry. This challenge can be mitigated by full understanding of
the structures of the industry and familiarity with its structural products
based on wider experience of the products. In addition to this, risk man-
agement is another challenge that the industry is confronting as com-
pared to its counterpart wherein there is no risk on the part of investors;
the issuer guarantees their (investors) full principal amount and fixed
profit for them. Notwithstanding this challenge can be enhanced by cre-
ating new products in order to ensure that standards remain adaptive and
effective throughout the market. Another factor of challenge that the
industry confronts is its nature of financing that needs huge amount and
big project to be financed (Grewal 2007).
Thus, the eligible assets of the Sukuk industry to be tradable in the

market are limited due to their conformity with the principles and guides
of Shari’ah. For this reason, the company which wants to issue Sukuk on
the same underlying asset that has been used has to wait until the matu-
rity date in order to be able to issue a new Sukuk on the same underlying
asset again. This issue can be considered as one of the challenges that the
growth of current Sukuk industry is facing (Muhammad al-Bashir 2008).
In a nutshell, the challenges that Sukuk industry is facing can be sum-
marized as misunderstanding of its products and structures of instru-
ments. Besides, its financial instruments should be in conformity with
the principles of Islamic law because regulations and framework of the
industry do not allow the industry to carry out any activity which is not
approved by Islamic law.
2.5 An Analysis of Sukuk in Islamic Capital Market

Sukuk can be evaluated from various aspects such as screening activi-
ties of the company that wishes to issue Sukuk, its assets, and regulatory
body that governs and guides the issuance of the Sukuk from initial stage
until maturity date in order to be structured in conformity with the prin-
ciples of Shari’ah. The unique characteristic of Sukuk is that the perfor-
mance of Sukuk in Islamic financial market and bonds in conventional
market are exercising concurrently. However, in Islamic financial mar-
ket any activity which is not in accordance with the principles of Islamic
law is not allowed to be transacted in the market. Besides, the company
which supplies, the market also should not involve in any activity which
is against the principles and provisions of Islamic law. Sukuk play a crucial
role in the market performance, which can increase attention of investors
to Islamic financial market. This is because Sukuk are an axiomatic seg-
ment in Islamic financial market which can create new products for the
market players in order to promote the development of the market all
over the world (Wan Razazila).
As a result of this, one can evaluate and analyses Sukuk based on the
regulatory framework and Shiari’ah perspective in terms of the structure
of the Sukuk from the initial stage until the termination of the transac-
tion. The company which issues Sukuk, should also be evaluated and
analyzed by financial experts and SAC in order to see whether the activ-
ities of the company are carried out in accordance with the principles of
Islamic law.
2.5.1 An Analysis of Sukuk Based on Regulatory Framework

In Sukuk market, regulatory framework plays a vital role in the activities
of the market in order to make it Shariah compliant. Therefore, there
must be guidelines in which the objective is to facilitate and develop
innovative and sophisticated Islamic financial instruments in global mar-
ket in order to meet the requirements of Muslims investors and pace
of the market all over the world. In this regard, Securities Commission
Malaysia which is one of the regulatory bodies of Malaysian Sukuk mar-
ket has issued in 2004 guidelines on offering of Sukuk to be in conform-
ity with the principles and rules that are required to meet the issuance of
the Sukuk. Therefore, the structures of Sukuk will be in accordance with
the principles of Islamic law (Wan Razazila).
Furthermore, Malaysia Securities Commission (SC) has issued in
2005 guidelines for Islamic Real Estate Investment Trusts (i-REITs)
to promote and facilitate creation of new ICM products in global
Islamic financial market. In 2007, the SC issued guidelines for Islamic
fund management and Islamic stock broking to operate in accordance
with the principles of Islamic law to be carried out either as full fledge
or window. In addition to that, in 2008 the SC issued guidelines for
company that wishes to establish Islamic venture capital the condi-
tions that should be fulfilled by the company to be eligible to operate
its activities in Malaysia. The SC also issued guidelines for unit trust
funds and conditions for establishing unit trusts funds in Malaysia as
well as appointment for Shari’ah adviser who will be in the company
to advise the activities of the company to be in accordance with the
principles of Islamic law. This regulatory framework can make bal-
ance between the enhancements of the growth of Sukuk industry and
ensuring safeguard of investors’ interests prior to any other things
(Wan Razazila).
From the foregoing, Sukuk can be evaluated and analyzed based on
the regulatory framework of the company that issues the Sukuk to the
investors so that the company cannot issue Sukuk in a way that contra-
dicts the regulation and framework of the Sukuk. The activities of the
company also must be evaluated and analyzed in order to ensure that the
activities are conducted in accordance with the rules and regulations of
the company’s framework that are agreed upon.
2.5.2 An Analysis of Sukuk Based on Shari’ah Compliance

In economical perception, Sukuk are akin to conventional bonds wherein
in both the investors aim to earn profit from the purchase of instru-
ments or investments and they mature at specific date that is predetrem-
ined. However, Sukuk are different from the conventional bonds; thus,
in Sukuk as Shari’ah compliant instruments the profit derived is not
guaranteed. This is because Islamic financial instruments should differ-
entiate from conventional ones particularly. This can be found in the
global annual report for issuance of Sukuk in which the volume of Sukuk
expanded substantially in the recent years. This growth can qualify Sukuk
for the following objectives:
1. Establishment of a global wholesale funding instrument for

Shari’ah compliant finance of real estate, including residential
property;
2. Establishment of a capital market instrument with sufficient critical
mass to be used as collateral for transactions of Islamic banks with
domestic and international central banks (Follak 2010).
Furthermore, by analyzing deeply the issues involving Shari’ah compli-

ance in global Sukuk markets, the following basic requirements should
be observed in the issuance of the Sukuk;
1. The underlying assets must be Shari’ah compliant, as well as the

issuer itself. This excludes prohibited actions such as traditional
finance, where Riba is charged.
2. The ban on Gharar—any excessive ambiguity, uncertainty or lack
of specificity affecting the principal components of the contractual
framework.
3. The ban on Maisir (speculation with the element of gambling).
4. The ban on Riba (the fixing in advance of a positive return on cap-
ital as a reward for waiting) (Follak 2010).
All the above points should be observed in the Sukuk transactions as

clear legal guidelines for quality of eligible assets that can be traded in
the global Islamic financial market. This is because Sukuk are different
from conventional bonds in terms of Shari’ah compliance without any
prohibited elements such as ambiguity.
2.6 Key Milestones in Sukuk Market

Table 2.1 represent key milestones in Sukuk market.
The Sukuk market is further proven in the global eye with issuance
from non-OIC members which became a testament for the viability of
Sukuk in the global economic growth. Among the sovereign Sukuk issu-
ances in 2014, 5 issuances certainly caught the attention of investors
by—UK, Senegal, Hong Kong, South Africa, and Luxembourg—which
were non-OIC (Organisation of Islamic Cooperation) nations, an evi-
dence to the feasibility of Sukuk outside the Muslim world. The year also
introduced the globe’s financial centers marking its way into the Sukuk
market as issuances from the UK and Hong Kong signaled that Sukuk
will be more widely accepted by mainstream finance.
2.7 Selected Notable Sukuk Issued
2.7.1 Medjool Sukuk Wakalah

The Dubai-based state-owned Emirates Airlines issued its first Sukuk in
March 2013 via SPV Medjool Limited. Emirates launched a USD1 bil-
lion amortising Sukuk maturing in 2023. The 10-year Sukuk carries an
average weighted life of five years and was launched at 300 basis points
over five-year midswaps. According to the Chairman and Chief Executive
of Emirates Airline and Group, the Sukuk was utilized to encourage
the Islamic economy and support the initiative of Dubai in becoming
the world capital of Islamic economy. The Sukuk is issued for multipur-
poses, one of which is to finance the upcoming aircraft purchasing deals.
Emirates airline has aircraft purchase agreement worth USD5 billion for
the current fiscal year where 25 aircraft will be delivered, one every five
weeks. The Sukuk issued by Emirates, one of the fastest growing global
airlines, was sold successfully to investors in MENA, Europe, Asia, and
some offshore US accounts (Fig. 2.3).
2.7.2 DIB Tier 1 Sukuk Mudharabah

Dubai Islamic Bank (DIB), the largest Shariah compliant lender in the
UAE by assets, issued a USD1 billion hybrid Sukuk in March. The per-
petual Sukuk, which is aimed at shoring up the Islamic bank’s core or
Tier 1 capital, was launched at a profit rate of 6.25% and received over
Table 2.1 Key milestones in Sukuk market
2
Key milestones in Sukuk market
United Kingdom • GBP200 million (USD339.5 million) Sukuk programme issued by the HM Treasury UK Sovereign Sukuk Plc
• First sovereign Sukuk issued based on Ijarah structure
• Oversubscribed by 12 times
• Successfully allocated to a wide range of investor with 39% of the Sukuk distributed to investors in the UK,
37% in the Middle East and 24% in Asia
Singapore • Issuance of inaugural SGD denominated Sukuk amounting to SGD85 million with 4 years maturity by The
Real Estate and Investment Trust of Singapore (Sabana REIT)
• Bumitama Agri Ltd., a Singapore palm-oil producer tapped the Malaysian market in last March 2014 through
the issuance of MYR500 million (USD152.6 million) Sukuk. The tenure of the Sukuk is 5 years
Luxembourg • First issuance of Euro denominated Sukuk amounting to EUR200 million with 5 years maturity
• Luxembourg-based ATLANTICLUX Lebensversicherung S. A. joined the Sukuk bandwagon after issuing a
5-year maturity corporate Sukuk worth of USD40 million
Senegal • Sovereign Sukuk worth 100 billion CFA France (USD200 million) was issued in July 2014 with 4 years
maturity
• The issuance marks an important milestone to the Sub-Saharan region given the market only have small
issuance before
Maldives • Maldives debuted in the Sukuk market in January with a 10-year corporate real estate Sukuk worth USD3.29
million
Republic of South Africa • The Republic has issued its maiden sovereign Sukuk in September 2014 which worth USD500 million
The United Arab Emirates • A sovereign Sukuk with USD750 million has been issued out of Sharjah Emirates; the first capital market debt
sale for the Emirate and had been oversubscribed over 10 times due to strong demand
Hong Kong • Successfully issued the first Sukuk worth USD1 billion with maturity of 5 years. The issuance has seen a strong
demand evidenced by oversubscriptions and tight pricing
• The Sukuk has been well spread over 120 global institutions with 36% of the Sukuk distributed to the Middle
East, 47% to Asia, 6% to Europe, and 11% to the United States. This has earmarked the important milestone of
Islamic finance development in Hong Kong
AN OVERVIEW OF ISLAMIC CAPITAL MARKET (ICM) AND SUKUK INDUSTRY
(continued)
31
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Terrell must tell her story again to a larger and fuller audience.” In
her remarks Mrs. Terrell told of the obstacles which confront colored
women and girls in their efforts to better their conditions. Often
having to battle against this great evil of race prejudice which yet
lingers in our land and which so often stands in the way of progress
for these women, not only, said Mrs. Terrell, must she struggle with
the handicap of color, but only too often she gets no sympathy from
the white woman, who should be at least willing to give a helping
hand to these colored friends who, like herself, are more or less
looking forward to perfect freedom and all which that means for
womanhood. The speaker thought that right here was a big field for
the American woman’s activities, and hoped for the co-operation of
her white friends.
Mrs. Stanton Blatch, who was in the audience, made a short but
forceful speech for the cause of women, and thought “the vote” would
help along quicker than anything else all reforms of this or any other
nature. The secretary of the Trades Woman’s League also spoke, and
declared that she would do her part toward opening the doors of her
association to all women, whether white or colored.
After a most delightful rendering of several Negro melodies, Mrs.
Hackley told how she so much hoped to establish a school of music
for her people. No one hearing her direct, simple and earnest story
doubted for a moment her ultimate success in this worthy effort, and
she most certainly will have the co-operation of every musical
member of her audience.
The chairman made a few remarks with his usual dignity and
precision, and the first musical morning was voted a real success.
Those having boxes were Mrs. Villard, Mrs. E. W. Harkness, Mrs.
Paul M. Warburg, Mrs. O. H. P. Belmont, Mrs. Robert Ingersoll,
whose daughter, Miss Maud, acted as one of the ushers; Mrs. Ida
Husted Harper, Mrs. Frederick Nathan, Mrs. Frances R. Keyser, Mrs.
Charles W. Anderson, together with many other well-known women,
white and colored.
The arrangements were in charge of Miss Frances Blascoer,
executive secretary of the Association.
The annual report of British East Africa for the year 1908–09,
which was issued a few months ago, states that the period was not
marked by any salient events, but the Protectorate had made steady
progress in spite of weather conditions somewhat unfavorable to
agriculture. There had been little or no friction with native tribes.
Labor difficulties still exist, but show a tendency to diminish.
European overseers of the native railway laborers have proved far
more satisfactory than the Indians formerly employed.
The report says of slavery:
“The ordinance for the abolition of the legal status of slavery has
worked well and without friction during the year. Altogether 3,593
cases have been settled by the District Courts, and compensation to
the amount of £7,053 has been awarded.”
WHAT TO READ
PERIODICALS.
Plea for the Conservation of Another Great National Resource. F.
P. Chisholm. Education, November.
Dip of the Tar Brush. M. A. H. New England Magazine, October.
Special Plea of a Southerner. E. Harlan. New England Magazine,
October.
Prince Henry of Portugal and the African Crusade of the Fifteenth
Century. C. R. Beasley. American Historical Review, October.
Excavation of Cyrene. F. W. Kelsey. Nation, October 27.
Diary of Gideon Welles. Atlanta, December.
Cuban Experiences. Frederick Funston. Scribner’s, December.
A Hero’s Conscience. G. Bradford, Jr. Atlanta, December.
BOOKS.
Wilson, Lady S. D. A.—South African Memories. Longmans.
Shotwell, W. G.—Life of Charles Sumner. Crowell. 733 pp.
Steffens. Alexander H., Recollections of. Doubleday, Page & Co.
572 pp.
Newton, J. H.—Lincoln and Herndon. Torch Press. 367 pp.
Sylvester, H. M.—Indian Wars of New England. Clark. 3 vols.
Haring, C. H.—The Buccaneers of the West Indies in the 17th
Century. Dutton. 298 pp.
Hagood, Johnson.—Memoirs of the War of Secession. State Co.
498 pp.
Deutsch, G.—History of the Jews. Bloch. 122 pp.
Shoemaker. M. M.—Islam Lands. Putnams. 251 pp.
Withers, P.—Egypt of Yesterday and To-day. Stokes. 293 pp.
Addams, Jane.—Twenty Years at Hull House. Macmillan, 462 pp.
Documentary History of American Industrial Society. Vol, IX:
Labor Movement. Clark. 378 pp.
THE LADY OF THE SLAVE STATES.
Mrs. George Haven Putnam, in a very charming essay in the
Contemporary Review for December, discusses “The Lady of the
Slave States.” She deals gently enough with her subject; she says that
the slave-owner’s wife like everybody else with slavery was blighted
by its curse, but she demolished very effectually the myth of the
gracious fascinating woman of culture who ruled family and estate by
the charm of her personality.
The ante-bellum Southern lady never had much to say for herself
and was in short not “the Gothic saint in her niche” that tradition
pictures, but a kindly little creature surrounded by “Orientalism” and
little better off, so far as opportunities for development went, than
any lady of the harem.
Mrs. Putnam quotes Miss Martineau, who traveled extensively
through the slave States, to show how the system limited the white
women and made them “the greatest slaves on the plantation.”
Patience was the supreme virtue of the ante-bellum lady—they made
the best of a bad state of affairs. Logic she had little or none, and her
up-bringing tended to make her a delightful girl but a middle-aged
woman of only moderate attractions. And while she was often very
kind to her slaves her sensibilities seemed in some measure blunted
by perpetual sight of suffering and injustice.
When the war ended the ex-mistresses of slaves showed how good
was the material that had been buried under the “Orientalism” of the
plantation.
RACE PREJUDICE IN THE ORIENT.
Race Prejudice: An address by Melville E. Stone to the Quill Club,
New York City.
The best review of this remarkable little pamphlet will be a few
extracts from its pages:
What is to be the outcome? What does all this mean for the future
of the world? Let us view the problem from the political, the
commercial and the moral aspects. How long will the 6,000 soldiers
we have in the Philippines be able to keep our flag afloat among
8,000,000 of natives? How long will the 75,000 English soldiers in
India be able to maintain British sovereignty over 300,000,000 of
Asians? Believe me, these are not idle questions. They are up to us
for an answer, whether we will or no, and upon our ability to make
answer will depend the future of what we are pleased to call our
Western civilization. I would not be an alarmist, and yet I would have
you feel that Macauley’s suggestion of the New Zealander on a
broken arch of London Bridge, sketching the ruins of St. Paul, has
come to be more than an extravagant figure of speech. And I am
convinced that there is real danger awaiting us unless we mend our
ways. It is not the Asian who needs educating; it is the European. I
am not worrying half so much about the heathen in his blindness as I
am about the Christian in his blindness. Asia is awake and preparing
for the coming struggle. And we are doing very much to force the
issue and to prepare her for the contest. For a century we have been
sending at enormous cost our missionaries to all parts of the
hemisphere to civilize. There may be doubt as to the amount of
proselyting we have been able to accomplish; there can be no
possible doubt of the work we have done to strengthen the Asian
people politically and commercially.
We shall never meet the problems growing out of our relation with
the Far East unless we absolutely and once for all put away race
prejudice. I believe the European snob in Asia is distinctly the enemy
of the civilized West. And his coadjutor in this country is a fitting
criminal yoke-fellow. Let me give you some illustrations of what I
mean—cases which came under my personal observation. From
Bombay to Yokohama there is not a social club at any port or treaty
point where a native, whatever his culture or refinement, will be
admitted. At the Bengal Club at Calcutta last year a member in
perfectly good standing innocently invited an Eurasian gentleman—
that is, one who is half native and half European—to dine with him.
It became known that the invitation had been extended, and a storm
of opposition broke among the members. The matter was finally
adjusted by setting aside the ladies’ department of the club, and
there the offending member and his unfortunate guest dined alone.
The next day the member was called before the board of governors
and notified that another like breach of the rules would result in his
expulsion. The beating of native servants and workmen in India is a
daily and hourly occurrence. It formerly was so at Hong Kong and
Shanghai, but Mr. Sprague, the representative of the Standard Oil
Company at Shanghai, told me that since the Russo-Japanese war
the natives would not stand it, and that all beating of them by
Europeans in that city had ceased.
The son of a maharaja goes to England, is educated at Oxford or
Cambridge, is lionized in the West End of London—mayhap he is
honored with an invitation to Windsor. When he goes back home he
may enter no white man’s club; if he be fortunate enough to be
invited to a white man’s function, no white woman will dance or
associate with him; and if by any luck he should marry a European,
he, his wife and his children become outcasts. Although native
troops, like the Sikhs, have shown undying loyalty to the British flag
and on frequent occasions have exhibited courage in the highest
degree, no one of them ever has or ever can achieve the Victoria
Cross.
Socially they are all saying to us: “Stop cheating us, stop swindling
us, stop your treating us as your inferiors who are to be beaten and
robbed.” Japan is crying out, “Treat us fairly and we will go more
than half-way. Leave to us the question whether Japanese laborers
shall go to America to annoy you, and we will stop them. But do not
say that you will admit the lazaroni of Hungary and Italy and Russia,
simply because they are white, and shut us out because we are
yellow.”
The Sinhalese, natives of Ceylon, while I was in Colombo,
addressed a remarkable communication to the Governor-General.
They said a hundred years ago there was established in the United
States a new theory of government—that there should be no taxation
without representation. “Now,” they said, “we ask a share in the
government of the island. We pay taxes. You may fix a property
qualification and say that no one having less than a thousand pounds
sterling shall share in the government. We shall not object. You may
also fix an educational qualification. You may say that no one but a
college graduate shall take part in the government. We will not
object. In short, you may fix any qualification except a racial
qualification. That would not be fair.” “And what answer have you to
make?” I asked Mr. Crosby Rolles, editor of The Times of Ceylon. “To
meet their request,” he replied, “would mean to turn over the
government of Ceylon to them at once, because there are 6,000 of
them and only 5,000 English men, women and children. We must
stop educating them.”
What do you think of that for a remedy? Personally. I do not think
it will work, any more than I think any rule of arbitrary repression
can endure. I cannot bring myself to sympathize altogether with the
views expressed by Mr. Roosevelt in his recent Guildhall speech. I
take refuge in what seems to me the larger experience and riper
judgment of Lord Curzon of Kedleston, who in July, 1904, was also
given the freedom of the City of London in Guildhall, and on that
occasion used these words: “Depend upon it, you will never rule the
East except through the heart, and the moment imagination has gone
out of your Asiatic policy your empire will dwindle and decay.
“In smug complacency you may close your doors which look
toward Asia, while you open wide those which look toward Europe;
you may refuse the Oriental admission to your schools, while you
accord the privilege to any child of a European; you may pile import
duties mountain high, and raise our standards of living to any pitch
of extravagance; you may build warships without limit, and you may
continue to treat the Asian as legitimate prey. But I am confident
that it will not avail.
“As a soldier, whether at Omdurman, in the Sudan, or on 203–
Metre Hill, at Port Arthur, the man of color has shown himself a
right good fighting man; in commerce he has, by his industry,
perseverance, ingenuity and frugality, given us pause; and before the
eternal throne his temporal and his spiritual welfare are worth as
much as yours and mine.”
BOOKS
When our readers wish to know where to buy the best books on race and other
human problems they should consult this list:
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“Perhaps in thus dramatically fashioning his volume Mr.
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the merit and charm are none the less: he has seized well a
splendid opportunity and has written one of the great
biographies of our literature.”
HENRY WATTERSON In the Louisville “Courier-Journal”
“No fault may justly be found with Mr. Villard’s telling of
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Forward Lease Sukuk in Islamic Capital Markets Structure and Governing Rules 1St Ed Edition Ahcene Lahsasna Full Chapter

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Forward Lease Sukuk in Islamic Capital

Markets: Structure and Governing

Forward Lease Sukuk

ISBN 978-3-319-94261-2 ISBN 978-3-319-94262-9 (eBook)

Library of Congress Control Number: 2018947406

© The Editor(s) (if applicable) and The Author(s) 2018

Cover illustration: proxyminder, iStock/Getty Images Plus

This Palgrave Macmillan imprint is published by the registered company Springer

The present book focuses on one of the instruments in Islamic capi-

Objectives of the Book

1. To present a comprehensive structure of forward Sukuk as a promi-

Scope of the Book

be noted that forward lease Sukuk is a part of Ijarah sukuk; however,

Kuala Lumpur, Malaysia Ahcene Lahsasna

2 An Overview of Islamic Capital Market (ICM)

3 Sukuk in Islamic Capital Market 37

4 Types of Sukuk, Their Classification

5 Theory of Ijarah, Securitization and the Concept

6 Forward Ijarah Sukuk: Concept, Issuance,

7 Major Principles, Terms and Conditions

8 Forward Lease/Ijarah Sukuk: Issues, Challenges

9 Ijarah Sukuk and Forward Lease

Appendix A: Securities Commission Malaysia

Appendix B: IFSB Requirements on Sukuk Issuance 221

Appendix C: DFM Standard for Issuing,

Appendix D: Glossary 269

AAOIFI Accounting and Auditing Organization

Fig. 2.1 Global Sukuk issuances: Sukuk report, IIFM (2009) 25

Fig. 4.21 Two parties parallel istisna (Source Author) 80

Table 2.1 Key milestones in Sukuk market 31

1.2 An Overview on Sukuk

© The Author(s) 2018 1

1.3 Sukuk as an Investment Certificate

The main benefits of Sukuk are as follows:

• Investment Sukuk are documents issued in equal value in the name

• Sukuk is a new source of funding for both sovereign and corporate

management. Sukuk is believed to be a long-term solution for the

1.4 Sukuk Versus Bonds

The profit is not guaranteed in Sukuk. Therefore, there is a possible

• Both Sukuk and bond represent a certificate of investment

1.6 Sukuk Versus Shares

1.7 Sukuk Versus Securitization

An Overview of Islamic Capital Market

© The Author(s) 2018 11

to demand of Muslim investors to invest their wealth in the investment

Today, the growth of economy of any Muslim country is based on its

2.2.1 Definition of Islamic Capital Market

compliance, the mandate of the Shari’ah board is both at the institu-

2.2.2 Types of Islamic Capital Market

1. Primary market is a market where a company or government issues

2. Secondary market is a market where securities issued by a govern-

In short, when a market is organized, it is called Bursa where companies

2.2.3 Islamic Capital Market in Malaysia

equities, unit trusts, exchange-traded funds, structured products, deriva-

1. Malaysia is the first Muslim country which established the first

It can be said that the development of ICM in Malaysia is different from

2.2.4 Challenges for Islamic Capital Market in Malaysia

conventional finance; hence this challenge is not relevant to the conven-

and Shariah standards to ensure the unique aspects of Islamic

To conclude, one of the most important challenges that ICM faces in

2.3 General Overview on Sukuk Market in Islamic

2.3.1 Sukuk Market from Shari’ah Perspective

1. For Sukuk in order to be tradable in accordance with the principles

1. To present a comprehensive structure of forward Sukuk as a promi-

1. Primary market is a market where a company or government issues

2. Secondary market is a market where securities issued by a govern-

1. Malaysia is the first Muslim country which established the first

2.3 General Overview on Sukuk Market in Islamic

1. For Sukuk in order to be tradable in accordance with the principles

2.4 The Growth of Sukuk Industry and Its Challenges

2.5 An Analysis of Sukuk in Islamic Capital Market

1. Establishment of a global wholesale funding instrument for

1. The underlying assets must be Shari’ah compliant, as well as the