World Islamic Finance Review gif RESULTS AND DISCUSSION
Sukuk Market in Malaysia The Malaysian Sukuk market has also grown to become more innovative and sophisti- cated to meet the diverse risk-return pro- files and requirements of both issuers and investors. The proliferation of new types of instruments with extended maturity profiles have generated a diversified range of play- ers, both local and foreign to participate in the market. This was facilitated by the liber- alisation of the market in 2005 to allow for issuance of debt securities by foreign corpo- rations and multilateral agencies in ringgit denominated papers.
In 2007, this was extended to foreign cur- rency denominated issuances. Indeed, this has attracted many foreign corporations, multinational corporations and multilateral agencies to raise funds and invest in is- suances and origination out of Malaysia, hence enhancing the Malaysian market, and strengthening Malaysia’s inter-linkages with other international financial markets.
The development of the Sukuk market in Malaysia has accompanied the transforma- tion of the Malaysian economy that has now become more diversified and private sector driven. The market, initially dominated by the Government debt securities, now re- flects the growing demand for the long term financing requirements of the private sec- tor. The corporate sector now raises 58% of their financing requirements through the debt securities and Sukuk market compared to about 33% ten years ago. The presence of a deep and liquid debt securities and Sukuk market thus contributes towards the stability of the financial system.
Global Sukuk industry experienced impres- sive growth over ten years ago in Malaysia and is now the focus in the development of Islamic financial system rapidly. Size of the global Sukuk market, including Sukuk de- nominated in local currency, has increased from USD336 million (RM1.3 billion) in 2000 to an estimated USD82 billion (or RM281 billion) at the end of 2007, with average an- nual growth rate of 40%.
However, the total Sukuk issuance for 2007 is only worth USD47 billion (or RM161 bil- lion), an increase of 73% of the total issued in 2006. Although the performance is not as estimated because of the economic cri- sis, but the flow of Sukuk issuance seen more positively and surviving. Sukuk also almost unique because it not only offered to Muslim investors but also to other con- ventional investors. According to sources IFIS, in 2010 shows that the global Sukuk reached US47.77 billion, an increase of 50% compared with the year 2009, which
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.
operation with the objective of contributing towards greater international financial and economic integration. No doubt, sukuk (Is- lamic bond) proved that it is among the most successful Islamic financial product in the industry and be one of the fastest-growing sectors in the global financial landscape.
Differences between Conventional Bond and Sukuk The most prominent characteristics of con- ventional bonds may be summarized as fol- lows: - Sukuk and their contemporary appli- cations.
• Bonds do not represent ownership on the part of the bond holders in the com- mercial or industrial enterprises for which the bonds were issued. Rather, they document the interest-bearing debt owed to the holders of the bonds by the issuer, the owner of the enter- prise.
• Regular interest payments are made to the bond holders. The amount of inter- est is determined as a percentage of the capital and not as a percentage of actual profits. Sometimes the interest is fixed, while oftentimes in bonds with longer tenors the rate of interest is al- lowed to float.
• Bonds guarantee the return of principal when redeemed at maturity, regardless of whether the enterprise was profitable or otherwise.
only reached US31.93 billion in the global market. As expected, Malaysia continued to dominate the issuance of Sukuk in 2010 and became the leading position in the global Sukuk market, with 65% of total outstand- ing Sukuk and 75% of primary issuance of Sukuk as at December 2010.
Malaysia is the world’s largest sukuk market with a number of Malaysia’s sukuk issues by 68.9%, or USD62 billion (or RM213 bil- lion) of total global outstanding at the end of 2007. Number of corporate sukuk in Ma- laysia more than RM30 billion in 2007. Ma- laysia will not only lead the development of the sukuk market in terms of total sukuk is- suance, even in terms of the introduction of innovative sukuk structures and competitive to attract more investors.
Moving forward, Malaysia will continue its ef- forts in strengthening the international link- ages in the global Islamic financial system through collaborative partnerships and co-
The issuer of such bonds is not required to return more than the principal and the agreed amount of interest. Whatever profits may have been earned by the enterprise ac- crue entirely and exclusively to the issuer. So the bond holders have no right to seek a share in the profits beyond the interest.
However, the main difference between Su- kuk with conventional bond is a claim of conventional bond investors on the future flow of money to the party that issued the bond. The contract between the investor and the issuer is a contract of debtors and credi- tors.
For example, an investor subscribed for bonds worth about RM 1000 and each year will be given the benefit of RM 100 if the 10% interest rate until maturity. Upon matu- rity of the bond investors will be given the benefit of it and paid the price of the bond proceeds of RM 1000. In other word, for the Sukuk, the method of calculating profit is similar to conventional bonds, but in the Su- kuk contracts, claims an investor rather than on cash flow alone, but claims the benefit of an investor is an asset used by the funds generated through Sukuk financing. In the
2012 May Global Islamic Finance 59
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