The steady development of the Islamic capital market (ICM) across the globe in recent years has positioned it as a significant counterpart to the conventional capital market. Malaysia has been at the forefront of global initiatives to establish a feasible ICM, with products that are attractive to investors and issuers worldwide. As the need for global funding continues to grow, ICM products have attracted the interest of a vast segment of market participants, not just Muslims concerned that market transactions are carried out in ways that comply with Islamic principles.

 

In line with the Securities Commission Malaysia’s (SC) mission “to promote and maintain fair, efficient, secure and transparent securities and futures markets and to facilitate the orderly development of an innovative and competitive capital market”, the SC’s Islamic Capital Market Series published by Sweet & Maxwell Asia aims to bring about a greater awareness and understanding of ICM issues, and to address the increasing interest of market participants and policy makers in the potential and opportunities presented by the ICM.

 

 

Sukuk are certificates of ownership of a pool of underlying assets, issued with the aim of using mobilized funds for developing new or existing projects, or financing business activities. They have played a significant role in firmly entrenching Islamic finance within the realm of Islamic capital markets. With the rising popularity of sukuk worldwide, the challenge before the Islamic finance industry, particularly those involved in sukuk, is to develop and build financial solutions on a solid Shariah foundation, taking the best of what is correct from existing sources, developing a home-grown paradigm and rejecting what is inappropriate and prohibited.

 

Sukuk – the first title in the Securities Commission Malaysia’s (SC) Islamic Capital Market Series – presents the insights of a panel of expert authors on various sukuk structures and contracts based on Shariah principles, such as ijarah, salam, istisna`, musharakah, mudharabah and wakalah. It aims to give readers a clear understanding and guidance on fiqh in the Islamic capital market (ICM), its practical workings from both the perspective of instruments and players, as well as to delve into opportunities available in the ICM. This presentation is enhanced by frequent references to the requirements of the global regulatory framework driven by international bodies like the Accounting and Auditing Organization for Islamic Financial Institutions and the Islamic Financial Services Board, and the experts’ views on how sukuk have been fashioned for jurisdictions like Kuala Lumpur, Dubai, Bahrain, London and New York, comparing and contrasting the basic ground rules in these jurisdictions. The reader will also benefit from the coverage given to the innovative varieties of sukuk that are penetrating markets never before imagined, including exotic forms attached with derivatives.

 

 

 

Introduction

The Emerging Islamic Capital Market

Sukuk and the Capital Markets

Ground Rules for Sukuk Issuance

Regulatory Issues: Innovations and Application in Sukuk

Legal Certainty for Sukuk

Basel II and Sukuk

Debt-Based Sukuk: Murabahah, Istisna` and Istithmar (Tawarruq) Sukuk

Ijarah Sukuk

Salam-Based Capital Market Instruments

Musharakah Sukuk: Structure, Legal Framework and Opportunities

Mudharabah Sukuk: Essential Islamic Contract, Applications and Way Forward

Wakalah Sukuk

Exotic Sukuk Features

Derivatives and Sukuk in the Islamic Capital Market

Nature of Risks Present in Sukuk Structures – Rating Agency Perspective

How Expansive are the Frontiers

 

 

Abdulkader Thomas (Editor) is the President and CEO of SHAPE Financial Corp, and has 25 years of diversified financial services experience. He was responsible for shepherding the first US banking regulatory approvals of Islamic financial instruments for ijarah wa iqtina and murabahah. A graduate of the Fletcher School of Law & Diplomacy in international trade, Abdulkader earned a BA with honours in Arabic & Islamic Studies from the University of Chicago.

 

List of Contributors: Abdulaziz Al-Qassar, Islamic Studies College, Kuwait University | Alex Saleh, International Division, Al Wagayan, Al Awadhi & Al Saif | Amjad Hussain, Eversheds | Ayman H Abdel-Khaleq, Vinson & Elkins LLP | Farah Naim, Eversheds | Harun Kapetanovic, Department of Economic Development, Government of Dubai | Hissam Kamal, Jadwa Investment (independent consultant and senior advisor in investment banking) | Iad Georges Boustany, BSEC S.A. | Imran Mufti, Lovells | Iqbal Khan, Fajr Capital Ltd | Jamal Abbas Zaidi, Islamic International Rating Agency | Kamal Assi, BSEC S.A. | Kuwait Finance House | Mahmood Al-Sheahabi, Center for Islamic Finance, Bahrain Institute of Banking and Finance | Maybank Investment Bank Berhad | Milly Leong, Malaysian Rating Corporation Berhad | Mohamed Ridza Abdullah, Mohamed Ridza & Co | Mohd Fadhly Md Yusoff, OSK Investment Bank | Muhamed Becic, Al Hilal Bank | Mushir Khwaja, SHAPE Financial Corp | Natalie Schoon, Bank of London and Middle East | Rahail Ali, Lovells | Rami Zayat, DLA Piper | Rodney Wilson, Durham University | Saad Rahman, Calyon Crédit Agricole CIB | Sayd Farook, Dar Al Istithmar | Sema Kandemir, Lovells | Shamsiah Mohamad, Academy of Islamic Studies, University of Malaya | Shabnam Mokhtar, International Shariah Research Academy, Malaysia | Todd Crosby, Vinson & Elkins LLP | Zarinah Anwar, Securities Commission Malaysia