3.Introductin to Sukuk

8/13/2019 3.Introductin to Sukuk

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ukukSukuk is an Arabic word and plural of a

word Sakk.

It signify legal instrument, deed or

Cheque.

It is an Arabic name for a financialcertificate which can be taken similar to

Bond.


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Bond

Islamic Jurisprudence

Sukuk

A financial product that develop inputmethods for capital resources.

It structure and engineered

Islamic financial products

bases of output


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Fixed and guaranteed

Income or interest bearing bondsare not permissible in Islam.

Sukuk are securitiesMeeting terms of Islamic Financial

law and investment principleswhich prohibits charging, paying

interest & involvement of Riba.


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Sukuk is a Financial Assets

Act in accordance with with

Islamic law

and

Classified

in accordance with their tradabilityand non-tradability in the

secondary markets


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Definition

Sukuk is non debt base instrument which isopposite to the bond and debenture and doesnot have means to guarantee the return, non

trade-able, non transferable, non-cashable priorto the maturity, non-collateralize, issued underequity participation in favor of original investor

of specific purpose, period, value and volumewith the condition of profit and lossparticipation and investor and seller identitydisclosed.


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Islamic Investment Principles (IIP)

IIP is the part ofShariah,Indirectly to be an

IslamicLaw. It is extensive to law as it cover

general body of spiritual and moral obligations

and duties in Islam towards economic, financial

and social affairs in the commerce & trade.

Sukuk is structure and issued under IIPwith thepurpose to structure the capital base of the

project &transaction under equity participation.


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A time-honored instrument

for a contemporary use

In post Islamic era Sakk which are nowcalled Sukuk were similar with

Conventional Cheque.

A document representing a contract,

Conveyance of rights, obligations orfinancial transaction in conformity

with the Shariah.


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Sukukhas a great potentiality in transformingassetsfuture Cash Flow into present cash flow.

Sukukis an input for the financial output

Practical evidence in archives indicate Sukuk asa product extensively used during medievalIslam for transferring financial obligations

Originating from trade and other commercial

activities.


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Sukuk may be issued on existingas well as specific assets that

may become available at afuture date.

Sukuk is the key to structurecapital as well cover the liquidity

requirement for permanent ortemporary requirement


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The need for tangible assetsShariah Rule

Financing should only be raised for purposespecific and identifiable which must have theEconomical and social viability.

Transaction under indebtedness are prohibitedas a result conventional bonds or debenture arenot permitted.

Sukuk returns and cash flows are linked totransaction workout Net Profit of transactionwithout any guarantee of return.


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User of funds need to utilize financingalong with contributing its equity in

transaction.Contribution of Equity is the share of

risk that user confirm in thetransaction .

Sukuk funds are Equity of Sukuk

owners that form into finance orfunds for venture

Shariah accept with risk and return

guideline of Islam.


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Rs.100,000

SUKUKPakistan Cotton Trading Ltd.

Subscription Amount Rs.100,000,000

Equity Participation 20:80Purpose Balancing , Modernizat ion & Replacement

Issued For Yousuf Ibnul Hasan

Issued 1stJune 2011to 31stDecember 2012

Non- Transferable, Non-Endorsable, Non-Cashable, Non Collateralize

Rs.100,000


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Problem with interest or Riba

Shariah Rule for MoneyMoneyis considers as measuring tool for

value.

Money is not a commodity.

Money cannot be bought and sold in similarquality.

Money to remain in circulation and cannot tobe stagnant or in holding


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Moneymust have support of equal valuewith authentication.

Moneyissuance on goodwill is an artificialvalue and such issuance is just a paper

printing.Moneyrequires to be utilized to receive

income or anything that has the type of

money alone.Moneyin exchange of money in similarquality is Interest a price of Money which

is Riba.


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Implication for Islamic financial institutionis trading and financing, receivables for

anything other than equality.Conventional loan, lending, borrowing or

debt base plastic currency are not

permissible.


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Problem of uncertaintyGarrar

Ambiguity in contractual terms oruncertainty in existence of an original

asset consider as unoriginal.

Shariah add in the concept of Publicbenefit, that, overwhelmingly in the

public good may yet be transacted

Hedging or mitigation of avoidablebusiness risks, may fall into this category

of Garrar but there is still much

discussion yet to come.


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(8) P- Formula

Financing is only be made available withclear understanding

of

Person, Purpose, Product, Project,Period, Performance, Process

=

Profit

And acceptance of Loss


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Declaration of Results

Financing is made available on 8 P formulaFinancing to be in clear confirmation:

Term and condition to pre-agreed

Duties and Responsibilities to define

Decision to be witness by active witnesses

Arbitration to be integral part of agreement

Agreement to be made by third person.

Monitor to be external body.

All matters to be in writing


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Sukuk for Financing

Sukukis the source of financing

Sukukis the source for structuring Capital

Sukuk is encouragement of saving conductSukukis a trading instrument without

excess to the face value

Sukukis specific and in general.

Sukukmust be in clear period and validity.

Sukukreturn are declared on maturity.


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Controversy

Sukuk are widely regarded as controversial due to

their visible purpose of evading limits on Riba

Traditional scholars do not believe that this iseffective, referring to the fact that Sukuk

requires payment for Time Value of Money

This consider as the basic application of

Interest


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Present Sukuk offerfixedandguaranteed rate of return on

investments, similar tointerestand itis risks freeof particular venture for

which Sukuk were issued.In reality banks invest in assets and return

from investment is spread over the

period. This flow of income is "fixed" andRate is pre declare without utilization of

investment amount which given to

investors.


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There is an asset in the background.

There is more security for the investor.

This security makes Sukuk increasinglyappealing to global investors

including Muslims and non-Muslims.

The soul of the Sukuk is not what is

been practice and the return is simplyan Interest which deviate theprincipal of participation.

Documents

3.Introductin to Sukuk