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 various 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 certificates 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 Shariâah 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 mawsufah fi al dhimmah. Ijarah sukuk are asset-backed, provides consistent and stable income to the investors, are tradable in the secondary market and is represented by Shariâah 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 clientâs 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 reference to its concept, structure, mechanism, governing rules, along with the process of issuance with emphasis on the various Shariâah 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 Shariâah 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 considered 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 underlined 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.
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 Shariâah compliant contracts; therefore, the return is legitimate and permissible from Shariâah perspective because there is no element prohibited by Shariâah such as riba .
- Sukuk are tradable Shariâah compliant capital market products providing 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 investment period with ...