gif Sukuk
(AAOIFI) ruling on Sukuk at the begin- ning of 2008 clarified the prohibition of the use of nominal value purchase undertakings in such Sukuk. In an al- Musyarakah Sukuk, the Issuer contrib- utes the subscription proceeds to enter into a joint venture with the Originator who contributes either his own capital/ asset or makes a contribution in kind. The Issuer and the Originator share the profits according to an agreed ratio but Shariah requires that any losses must be shared according to the ratio of capi- tal contributed. Besides that, the AAOIFI ruling confirmed that while it is permis- sible in an al Ijarah Sukuk for the lessee to undertake to purchase the Sukuk assets at nominal value upon redemp- tion, it is not permissible for a Sharik (partner) in an al Musyarakah Sukuk or a Wakil (agent) in a Sukuk al Wakalah bil Istithmar to undertake to do so. The Shariah considers such undertakings to effective guarantees of principal which are not permitted by Shariah in partner- ship and agency contracts. The AAOIFI ruling created a significant dent in the issuance of al Musyarakah Sukuk and al Mudharabah Sukuk.
• Istisna’a Sukuk: Absale and purchase agreement in order to finance a project item. Istisna’a Sukuk are certificates that carry equal value and are issued to mobilise funds required for production of goods products that will be owned by the certificate holders. The issuer of these certificates is the manufacturer; the subscribers are the buyers of the intended product, while the funds real- ised from subscription are the cost of the product. The Islamic bank funding the manufacturer during the construction of the asset, ac- quires title to that asset and up on completion either immedi- ately passes title to the develop- er on agreed deferred payment terms or, possibly, leases the asset to the developer under an Ijarah Sukuk. Shariah prohibits these certificates to be traded in the secondary market.
• Murabahah Sukuk: In the case of Murabahah Sukuk, the is- suer of the certificate is the seller of the Murabahah com- modity, the subscribers are the buyers of that commodity, and they are entitled to its final sale price upon the re-sale of the commodity. Murabahah Sukuk cannot be legally traded at the secondary market, as the cer- tificates represent a debt ow- ing from the subsequent buyer
54 Global Islamic Finance April 2012
of the commodity to the Sukuk holders and such trading in debt on a deferred basis is not permitted by Shariah.
Mohamad Zaid Mohd Zin, Mara University of Technology, Malaysia
Mohamad Zaid Mohd Zin is a lectur- er at Centre for Islamic Thought and Understanding, Mara University of Technology, Malaysia. He received his B.S degree in Syariah From Al Azhar University, Cairo, Egypt
(1999) and Master Degree in Islam- ic Studies (Syariah) from Malaysia National University (2005). His re- search interests in Islamic finance are in the areas Syariah issues and Sukuk. He is a member of Interna- tional Economics Development and Research Center (IEDRC) and joined over 10 International Conference as a presenter at Malaysia, Indonesia, Singapore and Dubai. Currently, he is a PhD student at Malaysia
National University under Faculty of Islamic Studies.
• Hybrid Sukuk: The innovative struc- tures. Based on various demands of investors, a more diversified kind of hybrid Sukuk or mixed Sukuk emerged in the market. The assets can comprise of Istisna’a, Murabahah as well as Ija- rah. Islamic Development Bank issued the first Hybrid Sukuk for US$400 mil- lion. The assets comprised 66 percent al-Ijarah Sukuk, 31 percent Murabahah and 3 percent al-Istisna’a Sukuk. The hybrid Sukuk structure represents the potential of new structures and benefits to the investors.
Sukuk Market in Malaysia In this decade, greater focus was given to the institutional arrangements to develop the Sukuk market. The Sukuk market now accounts for more than 50 percent of Ma- laysia’s bond market. The market has drawn the participation from a wide range of inter- national corporations and multilateral agen- cies in raising funds and investing in the Su- kuk issuances out of Malaysia.
More recently, there has also been continu- ous innovation and an increasing number of issuances in foreign currency. Malaysia offers international participation in the Is- lamic financial system and also offers to be an international gateway, particularly in strengthening the link between the two im- portant dynamic growth regions of Asia and the Middle East.
Figure 1: Breakdown of Global Sukuk Issues by Country for year 2010
Brunei Darussalam 0.5% Japan 0.2% Turkey 0.2%
Pakistan 1.9% Gambia 0.0%
Bahrain 1.4%
Pakistan 1.9% UAE 2.1%
Saudi Arabia 5.8% Qatar4.1%
Indonesia 6.0% United Kingdom 0.0%
Malaysia’s Sukuk market started with a simple issue size of RM125 million by Shell MDS Sdn. Bhd... In 1990 and is now growing in size and is increasingly sophisticated. This development is evident in the largest Sukuk issu- ance, recently valued at RM15.4 billion (US$4.7 billion) by Binariang GSM Sdn. Bhd. Now, the Sukuk market in Malaysia is among the fastest growing in the world, with an average annual growth of 22 percent issued for the period from 2001-2007.
Malaysia 77.7% Source: Zawya Sukuk Monitor.
After introducing the first sovereign global Sukuk in the world in 2002, Malaysia has continued its suc- cess by introducing innovative Su- kuk structures such as convertible musyarakah Sukuk by Khazanah Nasional Berhad, the Malaysian government investment holding company. This is a historic issue and the first of its kind in the world, which combines the features of the first full convertibility, usually for
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