A A: S c - Springer978-3-319-94262... · 2018-09-15 · Sukuk (plural of sakk), frequently referred to as “Islamic bonds”, are cer-ti˜cates with each sakk representing a proportional

215© The Editor(s) (if applicable) and The Author(s) 2018 A. Lahsasna et al., Forward Lease Sukuk in Islamic Capital Markets, https://doi.org/10.1007/978-3-319-94262-9

Appendix A: SecuritieS commiSSion mAlAySiA GuidelineS on Sukuk1

In order for the market players to issue a Sukuk under Ijarah sukuk or otherwise, they have to comply with the Securities Commission Malaysia guidelines on Sukuk. The Sukuk guideline of the Securities Commission has been issues and revised on 28 August 2014 and became effec-tive on 28 August 2014. Below are Chapters 1 and 2 of the Securities Commission Malaysian Sukuk guidelines.

A.1 introduction

1.01. These Guidelines on Sukuk are issued by the SC under section 377 of the Capital Markets and Services Act 2007 (CMSA).

1.02. These Guidelines comprise the following parts:

(a) requirements for an issuance, offering or invitation to subscribe or purchase Sukuk as set out in Part B of these Guidelines;

(b) approval for an issuance, offering or invitation to subscribe or purchase Sukuk as set out in Part C of these Guidelines;

(c) requirements for an issuance, offering or invitation to subscribe or purchase retail Sukuk as set out in Part D of these Guidelines; and

1The Sukuk guidelines of the Securities Commission presented in this Appendix if only part A, Chapters 1 and 2, in order to give an overview about the them, however other chapters in the guidelines are not included because there are many pages which is not appropriate to be incorporated in the present book.

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http://dx.doi.org/10.1007/978-3-319-94262-9_2

216 APPENDIX A: SECURITIES COMMISSION MALAYSIA GUIDELINES ON SUKUK

(d) the relevant Shariah rulings, principles and concepts that have been endorsed by the SAC, to be complied with for issuances of ringgit-denominated Sukuk.

1.03. These Guidelines shall come into force on 28 August 2014 and shall replace the Guidelines on Sukuk issued on 8 January 2014 (previ-ous Guidelines). Notwithstanding, Chapter 9A of these Guidelines shall only take effect on 1 January 2015.

1.04. Any issue, offer or invitation to subscribe or purchase Sukuk under the previous Guidelines shall comply with the corresponding provisions in these Guidelines.

1.05. These Guidelines shall be read together with other relevant SC guidelines. The table below sets out the application of the relevant guidelines on the respective capital market products:

Product Guidelines on Sukuk

Guidelines on the offering of asset-backed securities

Guidelines on private debt securities

Sukuk √ − –Asset-backed securities √ √ –Combination of Sukuk and

private debt securities√ – √

1.06. Any issue, offer or invitation to subscribe or purchase Sukuk by a public company that is—

(a) capable of being converted or exchanged into new equity of a public listed company (e.g. convertible Islamic loan stock1, con-vertible Sukuk and irredeemable convertible Islamic loan stock); or

(b) issued together with warrants.

Will also be subjected to the additional requirements stipulated in the Listing Requirements of Bursa Securities.

A.2 definitionS

2.01 In these Guidelines, the following words and expressions have the following meanings, unless the context otherwise requires:

APPENDIX A: SECURITIES COMMISSION MALAYSIA GUIDELINES ON SUKUK 217

Approval Means an approval, authorisation or recog-nition under Part VI of the CMSA as the case may be

Bursa securities Means Bursa Malaysia Securities BhdBusiness day Means a day (other than Saturday or

Sunday) on which commercial banks settle payments in Kuala Lumpur

Commercial paper (CP) Has the meaning assigned to it under the Participation and Operation Rules for Payments and Securities Services issued by Malaysian Electronic Clearing Corporation Sdn Bhd (MyClear), on behalf of Bank Negara Malaysia

Corporation Has the meaning assigned to it under sub-section 2(1) of the CMSA

Foreign currency-denominated Sukuk through a roadshow

Refers to foreign currency-denominated Sukuk that are

(a) issued by a foreign issuer;(b) not originated in Malaysia and(c) issued or offered to investors in Malaysia

and at least one other country; or(d) an invitation to subscribe or purchase

made to investors in Malaysia and at least one other country

Interested person Has the meaning assigned to it under the Trust Deeds Guidelines

International credit rating agency Refers to a credit rating agency that oper-ates in more than one international finan-cial center, is either licensed or registered by a relevant authority, and is capable of assigning international ratings that are widely accepted by international investors

Investment bank Has the meaning assigned to it under the Principal Adviser Guidelines

Islamic bank Means a bank licensed under the Islamic Banking Act 1983

Licensed bank Means a bank licensed under the Banking and Financial Institutions Act 1989

Licensed institution Has the meaning assigned to it under sub-section 2(1) of the Banking and Financial Institutions Act 1989

Medium-term note (“MTN”) Has the meaning assigned to it under the Participation and Operation Rules for Payments and Securities Services issued by MyClear, on behalf of Bank Negara Malaysia

218 APPENDIX A: SECURITIES COMMISSION MALAYSIA GUIDELINES ON SUKUK

Obligor Has the meaning as assigned to it under the Trust Deeds Guidelines

Originator Has the meaning assigned to it under the Guidelines on the Offering of Asset-Backed Securities

Principal adviser Has the meaning assigned to it under the Principal Adviser Guidelines

Retail investors Has the meaning assigned to it under the Guidelines on Sales Practices of Unlisted Capital Market Products

Retail Sukuk Means Sukuk that are proposed to be issued or offered to retail investors and include an invitation to subscribe or purchase Sukuk that are made to retail investors

Shariah Advisory Council (SAC) Has the meaning assigned to it under sub-section 2(1) of the CMSA

Sophisticated investors Means any person specified under Schedule 1 of the Guidelines on Sales Practices of Unlisted Capital Market Products

Special scheme brokers Has the meaning assigned to it under the Principal Adviser Guidelines

Stock exchange Has the meaning assigned to it under sub-section 2(1) of the CMSA

Sukuk Refers to certificates of equal value which evidence undivided ownership or invest-ment in the assets using Shariah principles and concepts endorsed by the SAC

Sukuk bai` bithaman ajil Are certificates of equal value evidencing the certificate holder’s undivided owner-ship of the asset, including the rights to the receivables arising from the underly-ing contract

Ijarah Sukuk Are certificates of equal value evidencing the certificate holder’s undivided owner-ship of the leased asset and/or usufruct and/or services and rights to the rental receivables from the said leased asset and/or usufruct and/or services

Sukuk istisna’ Are certificates of equal value evidencing the certificate holder’s undivided owner-ship of the asset, including the rights to the receivables arising from the underly-ing contract

APPENDIX A: SECURITIES COMMISSION MALAYSIA GUIDELINES ON SUKUK 219

Sukuk mudharabah Are certificates of equal value evidencing the certificate holder’s undivided owner-ship in the mudharabah venture

Sukuk murabahah Are certificates of equal value evidencing the certificate holder’s undivided owner-ship of the asset, including the rights to the receivables arising from the underly-ing contract

Sukuk musharakah Are certificates of equal value evidencing the certificate holder’s undivided owner-ship in the musharakah venture

Sukuk programme Means a facility which allows multiple issues, offers or invitations to subscribe or purchase Islamic MTNs, Islamic CPs or a combination of Islamic CPs and Islamic MTNs, within a validity period which is specified to the SC and in the offer document

Sukuk wakalah bi al-istithmar Are certificates of equal value which evidence undivided ownership of the certificate holders in the investment assets pursuant to their investment through the investment agent

Universal brokers Has the meaning assigned to it under the Principal Adviser Guidelines

2.02 For the purposes of these Guidelines, Sukuk refers to certificates of equal value which evidence undivided ownership or investment in the assets using Shariah principles and concepts endorsed by the SAC but does not include any agreement for a financing/investment where—

(i) the financier/investor and customer/investee are signatories to the agreement; and

(ii) the provision of financing/investment is in the ordinary course of business of the financier/investor, including any promissory note issued pursuant to the terms of such an agreement.


Appendix B: ifSB requirementS on Sukuk iSSuAnce

The IFSB has come out with guidelines on Sukuk for the benefit of the market players in the Sukuk market to comply with to ensure high-level standards compliance in the Sukuk issuance. Below is a summary of the IFSB guidelines:

B.1 definition

Sukuk (plural of sakk), frequently referred to as “Islamic bonds”, are cer-tificates with each sakk representing a proportional undivided ownership right in tangible assets, or a pool of predominantly tangible assets, or a business venture (such as a muarabah). These assets may be in a specific project or investment activity in accordance with Shariàh rules and prin-ciples. Sukuk differ from conventional interest-based securities or bonds in a number of ways, including:

(a) The funds raised through the issuance of Sukuk should be applied to investment in specified assets rather than for general unspecified purposes. This implies that identifiable assets should provide the basis for Islamic bonds.

(b) Since the Sukuk are based on the real underlying assets, income from the Sukuk must be related to the purpose for which the funding is used.

222 APPENDIX B: IFSB REQUIREMENTS ON SUKUK ISSUANCE

(c) The Sukuk certificate represents a proportionate ownership right over the assets in which the funds are being invested. The own-ership rights are transferred, for a fixed period ending with the maturity date of the Sukuk, from the original owner (the origi-nator) to the Sukuk holders.

Securitisation in Sukuk is broadly referred to as a process of issuing Sukuk involving the following steps:

(a) origination of assets (in conventional finance, these are nor-mally loans or other receivables, while in Islamic finance they are Shariàh-compliant assets such as the subject matter of ijarah);

(b) transfer of the assets to a special purpose entity (SPE) which acts as the issuer by packaging them into securities (Sukuk); and

(c) issuing the securities to investors.

B.2 Sukuk StructureS

While it may initially appear that Sukuk structures that are not based on partnership interests (musharakah or muarabah) have real assets at their core, a detailed analysis of the commercial terms and legal structure shows that, in fact, any one of the three following situations may exist:

(a) An asset-backed Sukuk structure that meets the requirements for being an asset-backed structure as assessed by a recognized external credit assessment institution (ECAI): this structure would leave the holders of Sukuk to bear any losses in case of the impairment of the assets. The applicable risks are those of the underlying assets, and these will in principle be reflected in any credit rating issued by a recognized ECAI. (This is the category explicitly covered by IFSB-2.)

(b) An asset-based Sukuk structure with a repurchase under-taking (binding promise) by the originator: the issuer pur-chases the assets, leases them on behalf of the investors and issues the Sukuk. Normally, the assets are leased back to the originator in a sale and lease back type of transaction. The applicable credit risk is that of the originator, subject to any Shariàh-compliant credit enhancement by the issuer. The rec-ognised ECAI will put weight, in determining the rating, on

APPENDIX B: IFSB REQUIREMENTS ON SUKUK ISSUANCE 223

the payment schedule of the repurchase undertaking and the capability of the originator to make the scheduled payments to the issuer (see paragraph 13 in the guidelines). Such structures are sometimes referred to as “pay-through” structures, since the income from the assets is paid to the investors through the issuer.

(c) A so-called “pass-through” asset-based Sukuk structure: a sep-arate issuing entity purchases the underlying assets from the originator, packages them into a pool and acts as the issuer of the Sukuk. This issuing entity requires the originator to give the holders recourse, but provides Shariàh-compliant credit enhancement by guaranteeing repayment in case of default by the originator.

Of the above three categories, this Standard focuses on the last two which are not explicitly covered in IFSB-2.4.

In conventional securitisations, the structure is normally such that the originator transfers the beneficial rights in or title to the assets to the issuer on behalf of the investors, who do not hold such rights directly but have beneficial ownership through their legal relationship to the issuer. The issuer is a SPE, which should be “bankruptcy remote” from the originator in order to protect the rights of the investors in case of the insolvency of the originator.

In many jurisdictions, however, including some in which Sukuk issues may take place, there may be legal obstacles to setting up an appropriate type of SPE which can meet the conditions for the fiduciary respon-sibilities mentioned above. In such legal environments, it may not be possible to transfer beneficial title in the assets to the investors, or to ensure that the investors are able to exercise these rights (for example, to repossess ijarah assets) in case of default. In such cases, it is not feasi-ble to create a structure for issuing non-recourse asset-backed securities (ABS).

For Sukuk holders, the applicable risk weights of structures in para-graph 10(b) and (c) above, where the issuance is likely to be exclusively supported by that of the originator through a repurchase undertak-ing, are the credit risk weight of the originator, subject to any Shariàh compliant credit enhancement by the issuer. The applicable credit risk weights are based on credit ratings issued by a recognized ECAI (see IFSB-2, Section B.1).


B.3 collAterAl Security Structure

Consideration of the collateral security structure is a critical factor; it needs to be the subject of legal opinions and is subject to Shariàh per-missibility (in the case of perfectibility). Those security interests must be the first priority (there can be no prior or subsequent claims) and per-fected (or perfectible).

The legal opinions must address the nature of the security interest, the enforceability of the security interest against third parties, and perfection requirements (such as notices, registration and recordation). The effects of bankruptcy on perfection must also be considered and opined upon. Issues arising include:

(a) Rahn (mortgage or other pledge of assets) concepts in certain jurisdictions are possessory in nature. This makes perfection a particularly difficult opinion issue in these jurisdictions.

(b) In many jurisdictions, and without regard to rahn concepts, per-fection and priority regimes are not well developed.

(c) Bankruptcy laws and regimes may also not be well developed in some jurisdictions.

B.4 Sukuk Structure with A repurchASe undertAkinG (BindinG promiSe)

In this structure, the originator enters into a repurchase undertaking (binding promise to buy the assets), according to which the assets are repurchased by the originator at maturity or upon early termination, if the originator has the option to call the Sukuk. Such structures are often used in the case of ijarah (sale and leaseback) Sukuk issues. Where a repurchase undertaking exists, investors have a credit exposure to the corporate or sovereign entity providing the undertaking, and an analysis of the exposure of the underlying assets becomes secondary. This gives rise to the risks of (a) the enforceability or strength of the repurchase undertaking in the jurisdiction, and (b) the ranking or priority of the Sukuk in the capital structure of the originator. The term “pay-through” is used for this type of structure when the income from the securitized assets is paid to the issuer, who passes it on to the investors (less any commission due to the issuer).

A commonly used Sukuk structure with a repurchase undertaking is the sovereign Sukuk issued by certain national monetary authorities.


Both ijarah-based (tradable) and salam based (non-tradable) Sukuk have been issued using such a structure, with a repurchase undertaking from the national monetary authority. In such a structure, the credit risk of the Sukuk is that of the originator. When the latter is a highly rated sov-ereign, the Sukuk benefit from an investment-grade credit rating; how-ever, achieving such a rating may be problematic for a private-sector originator.

A musharakah structure may be used that aims at replicating asset ownership by setting up a venture (musharakah) jointly owned by the Sukuk issuer (usually incorporated as a SPE) and the originator.

The issuer and originator’s shareholdings in the musharakah represent their respective capital contributions based on a parity agreed at the out-set, usually comprised of:

(a) capital from the issuer (for example, proceeds of the investors’ payment for the Sukuk); and

(b) specific assets and “management skills” from the originator. Should the cash flows generated by the assets under the business plan of the musharakah not be sufficient to fund these payments, subject to Shariàh permissibility, the issuer may have the option to call the repurchase undertaking on behalf of the investors.

B.5 pASS-throuGh Structure with no repurchASe undertAkinG

This is a structure involving asset-based Sukuk where a separate entity may act as sponsor and issuer, by purchasing the underlying assets from the originator (that is, a financial institution), packaging them into a pool and securitizing the pool by issuing the Sukuk. This sponsoring entity requires the originator to give the holders recourse, but provides Shariàh-compliant credit enhancement by guaranteeing repayment in case of default by the originator. This credit enhancement provides the Sukuk issuance with the credit rating of the (highly rated) issuer and thus enables it to achieve an investment-grade credit rating.

B.6 pArtieS in A SecuritizAtion Structure

The parties in a securitisation structure include the originator, the issuer and the investors, in addition to which the following may be involved: one or more credit rating agencies to rate the securities (Sukuk), an


investment banker to act as an adviser or to place the securities with investors, and (in conventional securitisations) an institution that acts as a provider of credit enhancement.

An IIFS may act as originator of Sukuk issues in any of the following cases:

(a) The ownership of assets held by the IIFS is transferred to hold-ers of Sukuk by means of a securitization. Such a securitization may offer the IIFS one or more of the following benefits: (i) increased liquidity, since a relatively illiquid asset (such as an

asset held as lessor in an ijarah or ijarah muntahiyah bittam-lik [IMB]) is converted into cash paid by the investors in the Sukuk; and

(ii) reduced capital requirements, insofar as the securitisation may permit the IIFS to exclude the assets from the calcula-tion of its risk-weighted assets since they are derecognised, subject to any securitisation exposures (see subsection 1.6 below).

The achievement of the second of these benefits will depend on the way in which the securitization is structured. For this, the IIFS must be able to derecognize all or most of the exposures relating to the assets from its balance sheet, according to the criteria for derecognition set out in para-graphs 29–31.

(b) An IIFS may act as sponsor of an asset-backed Sukuk issuance or similar programme involving assets of a customer in which the IIFS manages or acts as adviser to the programme, places the Sukuk into the market, or provides liquidity and/or credit enhancements. In this case, the benefit to the IIFS would be the earning of fees from the services provided.

In a securitization structure, the role of servicer consists of collecting payments on behalf of the investors and passing them onto the latter, when this function is not carried out by the issuer. In the case of ijarah or IMB assets, the lessor is legally responsible for maintaining the assets in such condition that the lessee is not deprived of the full usufruct of the assets, which involves responsibility for basic maintenance, insurance, and so forth. This function is performed on behalf of the Sukuk holders by the servicer, but the originator may act as servicer.


B.6.1 IIFS’ Exposure to Risks from Various Perspectives

As described earlier, an IIFS may act in various capacities in a Sukuk securitization. Its exposure to risks may be similar to that of the conven-tional securitization; however, Shariàh rules and principles may add an extra dimension to the existing risk exposures and may have a material effect on the risk profile of Sukuk holders.

The risk exposures of Sukuk from various perspectives are summarized in Table B.1.

B.7 operAtionAl requirementS pertAininG to Sukuk And SecuritizAtion

B.7.1 The Assets in Securitizations

The assets in the securitization have to be in compliance with Shariàh rules and principles. Islamic finance typically relates finance to assets, and the concept of payments of income and principal being derived from Shariàh-compliant assets is prevalent in Islamic structured transactions.

For an IIFS, the underlying assets to be securitized may include, inter alia, ijarah leased assets, murabahah or salam receivables, istisna` assets or equity ownership (musharakah or muarabah) according to Shariàh rules and principles. In certain jurisdictions, the Sukuk may also be based on a portfolio of underlying assets comprising different categories. Use of such a portfolio allows for a greater mobilization of funds, as mura-bahah or salam assets that do not meet Shariàh criteria for tradability (being classed as receivables) can be combined in a portfolio with ijarah assets and/or with musharakah or muarabah instruments that are classed as non-financial.

Thus, while Sukuk based on financial assets are not tradable, the latter may be combined in a pool with non-financial assets that can act as a basis for tradable Sukuk, provided the proportion of non-financial assets (neither debt nor cash) in the pool is not less than a certain acceptable minimum ratio, in accordance with Shariàh rules and principles.

Business ventures organized as musharakah or mu_arabah partner-ships may also be securitised, and the resultant Sukuk are tradable. Where such Sukuk are held by an IIFS until maturity and are unrated, the pro-visions of IFSB-2 for “equity position risk in the banking book” are applicable.


Tab

le B

.1

Ris

k ex

posu

res

from

var

ious

per

spec

tives

Hol

der

SPE

Issu

erSe

rvic

erO

rigi

nato

r

Liq

uidi

tyT

he S

ukuk

hol

der w

ill b

e su

bjec

t to

liqui

dity

risk

as

soci

ated

with

the

mar

ket,

whe

ther

in th

e pr

imar

y se

cond

ary

mar

ket.

Rat

e of

ret

urn

If t

he u

nder

lyin

g re

ntal

s ar

e fix

ed, t

hen

IIFS

hol

ding

th

e Su

kuk

will

be

expo

sed

to r

ate

of r

etur

n ri

sk s

ince

th

eir

IAH

are

exp

ectin

g re

turn

s re

flect

ing

a flo

atin

g ra

te b

ench

mar

k. T

he is

suer

m

ay e

xerc

ise

a cl

eanu

p ca

ll,

8 an

d th

e ho

lder

s of

the

Su

kuk

bein

g ca

ncel

led

may

no

t m

ake

the

retu

rn t

hey

are

expe

ctin

g.Im

pair

men

t of

ass

ets

Dep

endi

ng o

n th

e st

ruc-

ture

, the

hol

ders

of S

ukuk

be

ar a

ny lo

sses

in c

ase

of

the

impa

irm

ent

of t

he

unde

rlyi

ng a

sset

s, in

the

ab

senc

e of

neg

ligen

ce o

f th

e le

ssee

Ban

krup

tcy

SPE

is g

ener

ally

inco

r-po

rate

d as

a b

ankr

uptc

y re

mot

e ve

hicl

e to

miti

-ga

te b

ankr

uptc

y ri

sk.

Sett

lem

ent

To

avoi

d an

y se

ttle

men

t ri

sk in

rel

atio

n to

the

SP

E, a

ll pa

ymen

ts d

ue

from

the

obl

igor

will

be

pai

d by

the

obl

igor

di

rect

ly t

o th

e cl

eari

ng-

hous

e, if

any

, whi

ch w

ill

then

set

tle t

he p

aym

ents

di

rect

ly t

o th

e Su

kuk

hold

ers

Def

ault

If t

he o

rigi

nato

r fa

ils

to p

ay t

he c

oupo

n pa

ymen

ts, t

he S

ukuk

ho

lder

s (o

r th

e SP

E o

n th

eir

beha

lf) c

an d

ecla

re

an e

vent

of d

efau

lt an

d ac

cele

rate

the

pri

ncip

al

paym

ent

oblig

atio

n of

th

e or

igin

ator

by

com

-pe

lling

the

ori

gina

tor

to

repu

rcha

se t

he a

sset

.If

the

ori

gina

tor

fails

to

pay

the

prin

cipa

l am

ount

eq

ual t

o th

e Su

kuk

issu

e am

ount

at

the

mat

urity

of

the

leas

e te

rm, t

he

Suku

k ho

lder

s (o

r th

e SP

E o

n th

eir

beha

lf) w

ill

have

a r

ight

to

take

lega

l ac

tion

agai

nst

the

orig

i-na

tor.

The

Suk

uk h

olde

rs

(or

the

SPE

on

thei

r be

half)

may

als

o ha

ve t

he

righ

t to

sel

l or

fore

clos

e on

the

und

erly

ing

asse

ts

Serv

ice

defa

ult

Whe

re t

he u

nder

lyin

g as

sets

are

con

sum

er

linke

d, t

here

is s

till a

de

pend

ence

on

the

orig

inat

or d

espi

te t

he

fact

tha

t th

ey h

ave

been

so

ld t

o th

e Su

kuk

SPE

. T

he o

rigi

nato

r us

ually

m

aint

ains

the

bus

ines

s “r

elat

ions

hip”

with

the

un

derl

ying

con

sum

ers

and

cont

inue

s to

col

lect

pa

ymen

ts o

n be

half

of

the

Suku

k ho

lder

s.In

thi

s ca

paci

ty, t

he

orig

inat

or is

ref

erre

d to

as

a “s

ervi

cer”

and

, de

spite

sat

isfa

ctio

n of

all

the

regu

lar

secu

ritis

atio

n co

nditi

ons,

a d

efau

lt of

a

serv

icer

wou

ld s

till h

ave

an a

dver

se e

ffec

t on

the

Su

kuk

perf

orm

ance

Ris

ks r

elat

ed t

o re

purc

hase

und

erta

k-in

g (b

indi

ng p

rom

ise)

The

ori

gina

tor

is

oblig

ated

to

mak

e pa

ymen

ts in

res

pect

of

the

Suku

k or

the

ass

ets

in c

erta

in c

ircu

mst

ance

s re

sulti

ng fr

om a

bre

ach

of c

erta

in r

epre

sent

a-tio

ns a

nd w

arra

ntie

sT

he o

rigi

nato

r m

ay

need

to

com

pens

ate

the

issu

er in

the

equ

ival

ent

amou

nt o

r re

plac

e th

e re

leva

nt a

sset

s


B.7.2 Recognition of Risk Transference (Asset Derecognition Criteria)

An originating IIFS may exclude securitized exposures from the calcula-tion of its risk-weighted assets only if all of the following conditions have been met. IIFS meeting these conditions must still hold regulatory cap-ital against any exposures that they retain in respect of the securitization (such as credit enhancements). It should be noted that for the reason given in (c) below, assets securitized in non-ABS securitizations would not qualify for derecognition.

(a) Substantially all credit risks (and price risk, where applicable) associated with the securitized assets have been transferred to third parties. (Please refer to paragraphs 28–33 on Shariàh requirements pertaining to the transfers.)

(b) The transferor (that is, originator) does not maintain effective or indirect control over the transferred assets. The assets are legally isolated from the transferor in such a way that the exposures are put beyond the reach of the transferor and its creditors, even in bankruptcy or receivership. These conditions must be supported by an opinion provided by qualified legal counsel. The secu-ritized assets held by the issuer will not be consolidated with the assets of the originator or the issuer’s parent in a bankruptcy or insolvency of any of those entities.

(c) Holders of the Sukuk (investors) have a claim only to the under-lying pool of assets, and have no claim against the transferor. Hence, assets in non-ABS structures (pay-through and pass-through structures, as described in subsection 1.2 above), would not qualify for derecognition.

(d) The immediate transferee is a SPE, and the holders of the bene-ficial interests in that entity have the right to pledge or exchange such interests without restriction.

(e) Clean-up calls must be at the discretion of the originating IIFS. They must not be structured to provide credit enhancement and must be exercisable only when 10% or less of the purchase consideration for the underlying assets (for example, in an IMB) remains to be paid. If a clean-up call does not meet these condi-tions, it will be treated as a credit enhancement by the originator and give rise to a capital charge accordingly.


In order to comply with Shariàh rules and principles, the structure must transfer all ownership rights in the assets from the originator via the issuer to the investors. Depending on the applicable legal system, these ownership rights do not necessarily include registered title. The transfer could be a simple collection of ownership attributes that allow the inves-tor (a) to step into the shoes of the originator and (b) to perform (per-haps via a servicer) duties related to ownership. The transfer could also include rights granting access to the assets, subject to notice, and, in case of default, the right to take possession of the assets.

The transfer raises questions of whether one transfers (a) the control of assets, and (b) substantial risks and rewards of ownership of the assets. For the purpose of tax, accounting and/or regulation, the derecognition of the assets from the originator’s balance sheet relies on a “true sale”, meaning that the economic value of assets has been transferred from one party to another in a way that prevents the creditors or liquidator of the seller from claiming the assets from the buyer, thus creating “bankruptcy remoteness” for the assets. The question whether legal isolation has been achieved is to be judged by best practice standards. Differences in legal systems are to be taken into account in making this judgment.

From the Shariàh perspective, subject to jurists’ interpretations in the jurisdiction, there are four key criteria for a transaction to be considered as a “true sale” that transfers beneficial title:

(a) The transfer must be such that it cannot be recharacterized by a court or other body as a secured loan, or otherwise be avoided in a bankruptcy or insolvency proceeding involving the origi-nator of the assets (such as pursuant to a fraudulent transfer in anticipation of bankruptcy or a preference payment).

(b) The bankruptcy or insolvency of the originator should not affect the assets that have been transferred to the issuer/SPE. This, in turn, means that the issuer will be able to enforce collection and other rights against the source of the income (the payer) with-out hindrances resulting from the bankruptcy or insolvency of the originator.

(c) The transfer must then be perfectible at the election of the issuer.(d) The sale must be free and clear of all prior overriding liens.

In the case of bankruptcy remoteness, subject to the legal framework in the jurisdiction, the conditions include the following:


(a) If there were a bankruptcy of the issuer, the assets of the issuer would be distributed in accordance with law or a court order, rather than in accordance with the contractual arrangements involving the issuer.

(b) Separateness covenants will be required to ensure bankruptcy remoteness (as well as non-consolidation).

(c) Another provision to ensure bankruptcy remoteness relates to non-competition and bankruptcy declarations. The originator, investors, credit enhancers and others agree in the transaction doc-uments not to initiate involuntary bankruptcy proceedings against the issuer. The issuer also provides, in both its constitutive docu-ments and the transaction documents, not to initiate voluntary bankruptcy proceedings. The parties should seek a legal opinion from jurists in the jurisdiction concerned and ensure that these types of agreements and warranties are legally valid and enforceable.

B.8 treAtment for reGulAtory cApitAl purpoSeS of Sukuk And SecuritizAtion expoSureS

In conventional securitizations, it is common to have a structure in which the cash flows from an underlying pool of assets are used to service at least two different stratified risk positions or tranches reflecting different degrees of credit risk. Junior securitization tranches can absorb losses without interrupting contractual payments to more senior tranches. A key objective of such structures is credit enhancement for the senior tranche, such that it achieves at least an investment-grade credit rating.

This Standard is concerned with the capital treatment of exposures of an IIFS where the IIFS is the originator of a Sukuk issuance involving one class of Sukuk the income of which is derived from the income of underlying assets. In general, the risk weights as set out in paragraphs 21–27 of IFSB-2 are applicable to IIFS. One key issue for IIFS is the extent to which the exposures or obligations attaching to the underlying assets have been effectively transferred to the Sukuk holders. A related issue is whether any types of risk other than credit risk need to be consid-ered, such as price risk in the context of a securitization where the under-lying asset is a salam or istisna’ asset.

When referring to securitizations, it is customary to use the term “exposures” when referring either to (the credit risk of) assets involved


in the securitization, or to other exposures such as those resulting from credit enhancements or from acting as sponsor, issuer or servicer. In Islamic finance, in addition to credit risk there may be other exposures attaching to certain asset categories, as noted above.

While it is clear that the tradability of Sukuk is often a key issue, and is of fundamental importance if an IIFS is acting as a sponsor of an asset-backed securitisation programme involving assets of a customer, this sec-tion of the Standard does not deal with the issue of whether the Sukuk satisfy the Shariàh criteria for being tradable, as this is unrelated to the capital treatment of the underlying assets by the originator.

The rating of Sukuk must be from an eligible ECAI as recognized by the IIFS’s supervisory authority, and must take into account the entire amount of the credit exposure of the IIFS with regard to all amounts owed to it. Where Shariàh requirements can materially affect the credit risk, these will be considered.

B.9 cApitAl requirementS for iifS AS oriGinAtorS

B.9.1 Retained Securitization Exposures

IIFS as originators are required to hold regulatory capital against all of their retained securitization exposures, including those arising from the provision of credit risk mitigants to a securitization transaction, invest-ments in ABS originated by them, and extension of a liquidity facility or credit enhancement. Repurchased securitization exposures must be treated as retained securitization exposures.

The risk-weighted asset amount of a securitization exposure is com-puted by multiplying the amount of the exposure by the appropriate risk weight. For off-balance sheet exposures, IIFS must apply a credit con-version factor (CCF) and then risk weight the resultant credit equivalent amount. Please refer to paragraphs 25–27 of IFSB-2.

Below are the proposed credit risk weights for the retained securitiza-tion exposures where the IIFS is the originator (Table B.2):

Table B.2 Risk weights

Rating AAA to AA− A+ to A− BBB+ to BB− B+ and below Unrated

Risk weight (%) 20 50 100 150 100


B.9.2 Implicit Support

When an originator provides implicit support to a securitization, it must, at a minimum, hold capital against all of the exposures associated with the securitization transaction as if they had not been securitized. In other words, the existence of this implicit support restricts the derecognition of the underlying assets for capital purposes. This refers to a situation where an IIFS would meet the implicit support, if necessary, out of its own funds (that is, equity plus current account). An implicit support could not be met out of IAH funds without the consent of the IAH, as this would constitute misconduct and negligence and would give rise to other issues. 13 This would also be true of any other implicit support that is not Shariàh-compliant. In this context, the IIFS is required to disclose publicly (a) that it has provided non-contractual support and (b) the capital impact of doing so.

B.10 treAtment of liquidity fAcilitieS

The liquidity facilities in certain types of Sukuk structures are commit-ments from the facility provider to lend to or purchase assets from third parties if funds are needed to repay maturing Sukuk. The need for such facilities may result from a timing mismatch between cash collections of the underlying Sukuk assets and the scheduled payments (such as ijarah rental) under the programme to its holders. In this context, it is assumed the liquidity facilities comply with Shariàh rules and principles and meet operational requirements for the eligibility of a Sukuk liquidity facil-ity set out by the national supervisory authority. The requirements may include requiring the facility documentation to identify clearly and limit the circumstances under which it may be drawn. Subject to meeting such requirements, the proposed risk weight for liquidity facilities having a maturity of less than one year is set at 20% CCF, while that for facilities with maturities exceeding one year is set at 50% CCF. However, if an external rating of the facility itself is used for risk weighting the facility, a 100% CCF must be applied.

A servicer cash advance, based on qar_ (interest-free loan), is an advance granted by the servicer to the SPE to ensure timely payment to the investors—for instance, in cases of timing differences between col-lection and payments. 15 However, it is a Shariàh requirement that such facilities remain essentially separate from the Sukuk undertaking


and that this separation be properly documented. In case of servicer cash advances, the national supervisory authority has discretion to assign a risk weight of 0% to such facilities.

B.11 treAtment of credit riSk mitiGAtion for SecuritizAtion expoSureS

The treatment applies to an IIFS that has obtained a credit risk mitigant to a securitization exposure. Credit risk mitigants include guarantees, collateral and on-balance sheet netting or any other Shariàh-compliant credit risk mitigation as recognized by the regulatory authority. Collateral in this context is that used to mitigate the credit risk of a secu-ritization exposure, rather than the underlying exposures of the secu-ritization transaction, subject to fulfilling criteria in paragraphs 14–15 above.

Eligible collateral is limited to that recognized under the standardized approach for credit risk mitigation (IFSB-2, paragraph 36). Collateral pledged by SPEs may be recognized.

B.12 treAtment of credit enhAncement provided By An iSSuer or oriGinAtor

For Sukuk with credit enhancement provided by the issuer or the origi-nator, the risk weight is based on the credit rating of the credit enhancer.

Subject to Shariàh approval of the structure, an originator may retain a small equity share in a pool of securitized assets in order to provide over-collateralization. For example, the originator of a securitization of a pool of ijarah lease assets might securitize 90% of the pool and retain 10% as an equity position (first loss position)—that is, a residual claim. The Sukuk holders would be entitled to income based on 90%, and the originator based on the remaining 10%, of the rental income from the pool. However, if the rental income falls below the expected level, the shortfall would be made good to the extent of the originator’s first loss position based on a hibah (donation) agreement. Assuming that the orig-inator derecognized the percentage of the asset that was securitized, the capital treatment of the originator’s residual equity share would be either a deduction from its capital or a risk weighting of 1250%.


B.13 treAtment of credit enhAncement provided By A Structure

In a Shariàh-compliant credit enhancement structure (for example, as described in paragraph 48), the different components in the structure would be risk-weighted, as set out in Basel II, paragraph 567, as shown (Table B.3):

When an IIFS is required to deduct a securitization exposure from its capital, the deduction must be taken 50% from Tier 1 and 50% from Tier 2. Deductions from capital may be calculated net of any specific provi-sions taken against the relevant securitization exposures.

Table B.3 Risk weights

Rating AAA to AA− A+ to A− BBB+ to BBB− BB+ to BB− B+ and below

Unrated

Risk weight

20% 50% 100% 350% Deduction Deduction


Appendix c: dfm StAndArd for iSSuinG, AcquirinG And trAdinG Sukuk

c.1 the Scope of the StAndArd

This standard covers Definition of the Sukuk, Types, Parameters and list-ing requirements.

c.2 typeS of Sukuk

C.2.1 Finance Sukuk

C.2.1.1 Murabaha SukukThese are issued on the basis of Murabaha contract, and their issuance realized fund is used to finance the purchase of the Murabaha assets for the purpose of selling the same to the party promising to buy them. The Murabaha sakk represents a common share in the ownership of these assets—this would be—after the purchase of Murabaha assets and prior to their sale and delivery to the Murabaha buyer. After their sale to the party promising to buy them, the sakk represents a common share in the selling price of the Murabaha asset. The return of these Sukuk originates from the difference between the Murabaha assets’ purchase and selling prices.

238 APPENDIX C: DFM STANDARD FOR ISSUING …

C.2.2 Istisna’ Sukuk

These are issued on the basis of Istisna’ contract, and their issuance realized fund is used to finance the manufacturing of the asset sold on Istisna’ basis for the purpose of delivering the same to the buyer in another Istisna’ contract. The Istisna’ sakk represents a common share in the ownership of the manufactured asset, and it represents after deliver-ing the asset to its buyer, a common share in the selling price. The return of these Sukuk generates from the difference between the cost of manu-facturing the asset and its selling price.

C.2.3 Salam Sukuk

These are issued on the basis of salam contract, and their issuance real-ized fund is used to finance the purchase of the salam asset. The salam sakk represents before taking delivery of the salam asset a common share in the ownership of the asset, and it represents after taking delivery of the salam asset a common share in the very asset, while the sakk rep-resents after sale of the asset a common share in the selling price. The return of these Sukuk generates from the difference between the salam asset’s purchase and selling prices.

C.2.4 Ijarah Sukuk

C.2.4.1 Sukuk of Ownership of Leasable AssetsThese are issued on the basis of sale and lease contracts, and their issu-ance realized fund is used to finance the purchase of a leasable asset (to own its title and usufruct) for the purpose of leasing it in particular or as a liability by description (Ijarah Mawsufa Bithimma), whether to its orig-inal seller or to someone else, for an agreed period, which is the dura-tion of the Sukuk, against an agreed rent. The sakk represents a common share in the ownership of the asset, its title and usufruct, and it repre-sents after leasing it a common share in the rent, which represents the return of these Sukuk.

C.2.4.2 Sukuk of Ownership of the Usufruct of Leasable AssetsThese are issued on the basis of purchase or lease of an asset. Their issuance realized fund is used to finance the purchase of a usufruct of an ascertained asset or an asset established as liability by description

APPENDIX C: DFM STANDARD FOR ISSUING … 239

(Mawsufa Bithimma), then to resell the usufruct in particular or on the basis of liability by description (Ijrara Mawsufa Bithimma) against an agreed rent. The sakk represents a common share in the owner-ship of the usufruct of the asset and not its title, but after the sublease it represents a common share in the rent. The return of these Sukuk generates from the difference between the usufruct buying and selling prices.

C.2.4.3 Sukuk of Lease of ServicesThese are issued on the basis of lease of services, and their issuance real-ized fund is used to finance the purchase of services from their provider for the purpose of selling the same to the services recipient. The sakk represents prior to the sale of the service a common share in the own-ership of the service, which is yet a commitment on its provider, and it represents after selling the service a common share in its price. The dif-ference between the service buying and selling prices forms the return of these Sukuk.

C.2.4.4 Sukuk of Operating LeaseThese are issued on the basis of lease of an asset against an agreed rent for a specific period after the end of which the leased asset reverts to its owner. The lessee, however, may undertake to buy the asset after the expiry of the lease contract.

C.2.4.5 Sukuk of Financial LeaseC.2.4.5.1 Sukuk of Lease of Specific AssetsThese are issued on the basis of lease of an asset owned by the lessor against an agreed rent comprising two elements: a fixed rent, and a var-iable rent linked to an external index, for a specific period after the end of which the title of the leased asset shall be transferred to the lessee by virtue of an independent sale or lease contract.

C.2.4.5.2 Sukuk of Lease of Unspecific AssetsThese are issued on the basis of lease contract of an asset which is not yet owned by the lessor at the time of contracting (Mawsufa Bithimma), but the lessor is committed to source it and deliver it to the lessee on a specific date.


c.3 inveStment Sukuk

C.3.1 Mudaraba Sukuk

These are issued on the basis of Mudaraba contract, and their issu-ance realized fund is used to pay the Mudaraba capital to the Mudareb in order to invest it against a predetermined share in the profit. The Mudaraba sakk represents a common share in the ownership of the Mudaraba assets, which may include tangible assets, usufructs, cash money, debts and other financial rights. After sale of the Mudaraba assets, the sakk represents a common share in the selling price. The Sukuk holders are entitled to a common share in the investment return of the Mudaraba assets; on the other hand, they share the investment risks in proportion to the number of Sukuk they hold. The Mudaraba rules and conditions and the Sukuk holders’ profit share shall all be out-lined in the Prospectus and the Shari’a contracts thereto

C.3.2 Wakala Investment Sukuk

These are issued on basis of Wakala investment basis, and their issuance realized fund is used to form the capital which is paid to the investment agent to invest it against a predetermined fee. Every sakk represents a common share in the Wakala assets which may contain tangible assets, cash, debts and other financial rights; and it represents a common share in the Wakala assets price after they have been sold. The holders of the investment Wakala Sukuk are entitled to the investment return and liable for the investment risks, each in proportion to the number of the Sukuk he holds. The investment agent, in return, is entitled to a guaranteed fixed fee payable by the Sukuk holders, in addition to all or a percent-age of the profit exceeding a certain threshold, as incentive if applicable. Rules and conditions of the investment Wakala contract and the invest-ment agent fees shall be determined in the Prospectus of these Sukuk and the Shari’a contracts thereto.

C.3.3 Profit Sharing Sukuk

These are issued on the basis of Musharaka contract, and their issuance realized fund is used to pay the Sukuk holders’ share in the capital of Musharaka, whose other partner is the Sukuk originator. The Musharaka sakk represents a common share in the ownership of the Musharaka


assets, which may include tangible assets, usufructs, cash money, debts and other financial rights. After sale of the Mudaraba assets, the sakk represents a common share in the selling price. The Sukuk holders are entitled to a common share in the investment return of the Musharaka assets and are liable for the investment risks in proportion to the num-ber of Sukuk they hold. The Musharaka rules and conditions and the Sukuk holders’ profit share shall all be outlined in the Prospectus and the Shari’a contracts thereto.

c.4 produce ShArinG Sukuk

C.4.1 Muzara’a Sukuk

These are issued on the basis of Muzara’a contract (sharecropping), and their issuance realized fund is used to finance the cost of cultivat-ing a land provided by its owner as a party to the Muzara’a contract. The Muzara’a sakk represents a common share in the ownership of the Muzara’a assets, with the exception of the land, and a common share in the crop after its emergence, and a common share in the price after sell-ing the crop, while the landowner takes the other share. The Muzara’a rules and conditions and the shares of both the Sukuk holders and the landowner in the selling price shall all be outlined in the Prospectus and the Shari’a contracts thereto.Musaqat SukukThese are issued on the basis of Musaqat (irrigation of a planted land) contract, and their issuance realized fund is used to finance the cost of caretaking of a land planted with fruiting trees through irrigation, prun-ing, fertilizing and pest controlling until they yield fruits. The Musaqat sakk represents a common share in the ownership of the Musaqat assets, with the exception of the land and the fruits, and it represents a common share in the fruits after their emergence. The holders of these Sukuk are entitled to a common share in the fruits and a common share in their selling price after the sale, while the trees’ owner takes the other share. The Musaqat rules and conditions.

Issuance of Sukuk

Sukuk Issuance Arrangements

1.1.1.1. Sukuk are issued by an authorized entity or by a special purpose vehicle that it is independent in its legal entity


and financial liability. The SPV receives the subscrip-tion proceeds and acts as the Sukuk holders’ trustee in holding title of the Sukuk assets, and as their agent in investing and utilizing the same in what the Sukuk were issued for, in addition to distributing their proceeds and redemption value. The SPV, on behalf of the Sukuk holders, may also contract with the Sukuk originator and any other parties involved in the Sukuk issuance.

1.1.1.2. The SPV may appoint an experienced party to handle some of its responsibilities; besides, the SPV must exer-cise its best efforts to protect the rights of the Sukuk holders.

1.1.1.3. The SPV shall maintain regular accounts of its opera-tions, and the accounts shall be audited by at least one charted accountant.

1.1.1.4. The SPV shall be committed to send a copy of its finan-cial statements, whether relating to the periodic finan-cial statements, the annual financial statements, or the core events which the SPB is committed to disclose to the Sukuk holders, the Sukuk originator and the Sukuk Shari’a Committee.

1.1.1.5. For every Sukuk issuance there must be a Shari’a Committee comprising three members with PhD in Islamic law, or two members with PhD in Islamic law and one with a PhD in economics or finance. This committee shall be selected by the Sukuk origina-tor, who can also choose the DFM Fatwa & Shari’a Supervisory Board to handle the Shari’a Committee’s responsibilities.

1.1.1.6. The Shari’a Committee’s functions are as follows: 1.1.1.6.1. To give the Shari’a opinion on the Sukuk meant

for issuing and endorse their structure, con-tracts and prospectus.

1.1.1.6.2. To ensure that issuance, trading and redemp-tion of the Sukuk have all been in line with the Shari’a rules.

1.1.1.6.3. To ensure that the use of the Sukuk issuance proceeds is in accordance with the purpose of issuance and that the distribution of the Sukuk


returns from issuance to redemption has been in line with the Shari’a rules.

1.1.1.6.4. To monitor and audit all parties involved in the Sukuk issuance including the SPV, as well as all activities, projects and deals financed by the Sukuk issuance proceeds in order to ensure that all have been executed in accordance with the Shari’a rules and to submit periodical reports to the Sukuk holders’ association, if any.

1.1.1.7. The Sukuk Shari’a Committee shall have the authority to appoint one Shari’a auditor or more to carry out the auditing job and submit to it the relevant reports.

1.1.1.8. The Sukuk Shari’a Committee shall notify the Securities Commission in the Country of any violations of the Shari’a provisions found while performing its supervi-sory role.

1.2. The Issuance Prospectus The Issuance Prospectus shall be pre-pared in coordination with the Shari’a Committee and all relevant parties, and shall include the following:

8.4.4.1. Both names of the Sukuk originator and the Sukuk issuer, their details, rights and obligations and the sub-scription proceeds utilization channels.

8.4.4.2. A proper feasibility study of the project or the venture to be financed by the Sukuk proceeds, which should include:

8.4.4.2.1. Ample description of the project of the venture 8.4.4.2.2. The total cost of setting up or developing the

project of the venture, its management, compo-nents, phases as per subscription, potential risks and their hedging instruments, Shari’a compli-ant guarantees and its expected profits.

8.4.4.2.3. The feasibility study needs also to be endorsed by an independent financial adviser who is cer-tified by Securities Commission in the Country, and the Sukuk originator shall guarantee the accuracy of all data and information included in the issuance prospectus.


8.4.4.3. Defining the underlying issuance Shari’a financial con-tract; its rules, conditions and legal consequences.

8.4.4.4. A clause, in the issuance Shari’a contracts and their title-transferring contracts, to the effect that the title to the Sukuk assets has been transferred to the Sukuk hold-ers or their representative from both Shari’a and legal perspectives.

8.4.4.5. The Prospectus must also include a detailed fatwa issued by the Sukuk committee to the endorsement of the Sukuk structure and documents. This fatwa shall be deemed an integral part of the Sukuk legal documents so that it forms the point of reference for interpreta-tion and explanation of these documents. In addition, the Fatwa shall include a clause to the necessary adher-ence to Shari’a rules as decided by the Sukuk Shari’a Committee in all subsequent procedures.

8.4.4.6. The Sukuk issuance prospectus and its documents must include a statement to the Sukuk Shari’a Committee selected for the issuance and its responsibilities in super-vising and auditing the project or the venture, where the Sukuk issuance proceeds are invested, and in sub-mitting periodical reports on quarterly basis to the Sukuk holders and publishing them on the market. The Sukuk Shari’a Committee shall have the right to sum-mon the Sukuk holders or their representatives to take the appropriate action in case of a flagrant infringement of Shari’a rules, procrastination or refusal of the project or venture manger to follow the Shari’a committee’s instructions or to remedy any violations.

8.4.4.7. A clause to the participation of the sakk owner in profit and loss in accordance with the sakk type and nature (as per Shari’a rules), and with the number of Sukuk he or she holds.

8.4.4.8. The nominal value of the sakk as well as the subscrip-tion value and duration.

8.4.4.9. A report on the fair value of the Sukuk assets by one of the charted financial advisers of the Securities Commissions in the Country, in case the Sukuk were issued against existing assets.


8.4.4.10. When the nature of the Sakk requires—An issuance credit rating certificate issued by a rating agency rec-ognized by the Securities Commission in the Country. The rating must reflect, at least, the minimum abil-ity to meet the commitments contained in the public prospectus.

8.4.4.11. A record of the agreements signed between the suku originator and the parties participating in the issuance.

8.4.4.12. The project or venture mechanism for profits distribu-tion and loss sharing.

8.4.4.13. Dates of subscription offering and closing, and rules governing the case of failing to meet the subscription percentage specified in the prospectus, without preju-dice to the instructions of the Securities Commission in the Country.

8.4.4.14. The method of Sukuk allocation among subscribers in the case of oversubscription.

8.4.4.15. The Sharia’ rules governing the tradability and redemp-tion of each type of the Sukuk, in accordance with the Shari’a principles and the Shari’a issuance contract.

8.4.4.16. Reasons that trigger the early maturity of the Sukuk, treatment of cases of default and settlement of Sukuk holders’ rights.

8.4.4.17. The name of the SPV if it is the issuer of the Sukuk as well as its functions, authorities and relationship with the other parties participating in the issuance.

8.4.4.18. Any other data required by the Securities Commission in the Country or by the Sukuk Shari’a Committee.

8.4.4.19. The Prospectus may not include any clause that vio-lates the provisions of the issuance contract or its Shari’a legal consequences.

8.4.5. Subscription Coverage 8.4.5.1. It is permitted to include in the Prospectus a clause to

the appointment of a trustee, selected by the SPV and certified by the Securities Commission in the Country, to handle on behalf of the SPV the distribution of returns and the payment of the redemption value upon the maturity of Sukuk, as per the provisions contained in the Prospectus.


8.4.5.2. It is permitted to have a Sukuk underwriter certified by the Securities Commission in the Country to guar-antee the subscription. It is permitted as well to have a redemption undertaker so as long this does not breach the rules of Sharia.

8.4.5.3. The Sukuk issuance realized fund must be used for the same purpose the Sukuk were issued for and in accord-ance with the Shari’a rules.

8.4.5.4. In case of insufficient subscription and suspension of issuance all amounts paid by the subscribers must be repaid to them during the period determined by the Prospectus.

8.4.6. Listing and Trading 8.4.6.1. All Sukuk put to IPO must be listed and traded in the

stock market; however, they can be listed and traded in international financial market. The Market BOD shall define the listing regulations and procedures, which must not be in conflict with any Shari’a rules.

8.4.6.2. It is permitted to request listing of the Sukuk offered for private placement in the market, and in the case of non-listing they shall be sold over the counter, accord-ing to the regulations issued by the market.

8.4.6.3. Listing and trading of Sukuk shall in all cases be sub-ject to the Shari’a rules and the resolutions issued by the Sukuk Shari’a Committee and the Securities Commission in the Country.

8.4.6.4. The Sukuk originator may undertake to redeem the Sukuk upon their maturity and pay their value to their holders through purchase of the then-existing Sukuk assets. He may also undertake to purchase these assets before maturity of the Sukuk at a value defined according to the Shari’a guidelines outlined in the Prospectus.

8.4.7. Protection of the Sukuk Holders Rights 8.4.7.1. The Sukuk holders of every issuance may form an asso-

ciation for the purpose of protecting the common inter-est of its members. It shall have a legal representative who is to be selected and dismissed in accordance with the Protectus.


8.4.7.2. The association’s representative shall take all actions to protect the Sukuk holders’ common interest, including litigation against the Sukuk originator, the SPV or any other party, in accordance with the association’s resolu-tions made in its appropriate meetings. The Prospectus shall determine the guidelines and procedures pertain-ing to the association’s call for convening, the eligibility criteria for attendance, the arrangements and venue of the meeting, the voting process as well as the associa-tion’s relationship with the beneficiary form Sukuk issu-ance and the SPV.

8.4.7.3. It is permitted to establish a cumulative reserve to pro-tect the Sukuk holders from the investment risks. The reserve shall be financed through the deduction of a certain percentage of the Sukuk holders’ share in the realized profits until the reserve reaches a specific limit during the term of the Sukuk. The Prospectus shall define how to form the reserve from the Sukuk holders’ share in the net profit after deduction of the Mudareb’s or the investment agent’s profit share, how to utilize this reserve and how to distribute the remaining balance among its respective owners upon the maturity of the Sukuk.

8.4.8. The General Principles for Issuance of Sukuk 8.4.8.1. Sukuk must be issued on the basis of a Shari’a contract

which must: 8.4.8.1.1. Satisfy its pillars and conditions, 8.4.8.1.2. Produce its legal effects and consequences, 8.4.8.1.3. Be implemented in a way that fulfills its Shari’a

objectives and; 8.4.8.1.4. Be void of conditions that contradict its essence

and Shari’a objectives. 8.4.8.2. The activities: Issuance and trading of Sukuk are not

allowed if their issuance realized fund is meant to be used in unlawful activities, or if some of the Sukuk assets were unlawful.

8.4.8.3. Issuance, trading or redemption of Sukuk must not involve or boil down to the sale of spot money against deferred by more money consequently.


8.4.8.3.1. It is not permitted for the transfer of ownership of assets form the seller in the Sukuk of tangible assets or the Sukuk of usufruct of asset to the fictitious, i.e. it does not involve real and legal transfer of ownership.

8.4.8.3.2. It is not permitted for the assets sold to the Sukuk holders in Sukuk of ownership of leased, or to be leased, tangible assets to be unsalable according to the official laws, or to remain as the property of the seller appearing thus in accounting terms on the balance sheet and not off the balance sheet.

8.4.8.3.3. It is not permitted that the investment Sukuk documents state that the Sukuk originator (as Mudareb, managing partner or investment agent) is indebted for the Sukuk sale proceeds or the Sukuk assets value to the Sukuk holders and not managing the Sukuk assets on a trust basis.

8.4.8.3.4. It is not permitted that the Sukuk prospectus or contracts state that the Sukuk holders shall not have the right of recourse to the Sukuk assets or to legitimately or legally dispose them of like normal assets owners do. On the contrary, such rights must be clearly stated for the Sukuk holders in the Prospectus.

8.4.8.4. The return on the Sukuk must reflect the outcome of Sukuk assets investment, and it is neither a financial lia-bility nor a commitment upon the Sukuk originator in return of his utilization of the Sukuk proceeds.

8.4.8.5. The Sukuk issuance proceeds shall throughout the dura-tion of the investment be utilized as per the purpose of their issuance and according to the Shari’a rules and precepts.

8.4.8.6. Sukuk may be nominal, i.e. carrying the name of the sakk holder, and their title is transferred by registration in a special record or by writing on them the name of every new holder. Sukuk may also be for their bearer, so title is transferred then by virtue of changing hands.


8.4.8.7. If issuance of the Sukuk is to finance the establishment or development of a project, then the following shall be observed:

8.4.8.7.1. Both the purpose and activities of the pro-ject are legitimate and in line with the Shari’a precepts.

8.4.8.7.2. The project is managed financially as in inde-pendent unit so that its financial position and outcome can be made known at the end of the investment period.

8.4.8.7.3. The project financial accounts are distinguished and independent of the accounts of any other projects which constitute a liability on the Sukuk originator; the beneficiary of the Sukuk issuance proceeds.

8.4.8.7.4. The project is that would yield some returns based on its feasibility study.

8.4.8.7.5. The project financial statements are prepared according to the accounting standards of AAOIFI.

8.4.8.7.6. The project accounts are controlled by a quali-fied financial controller(s) appointed by the SPV.

8.4.8.7.7. The project is audited by the Sukuk Shari’a Committee to ensure the compliance of its activities, profit distribution and loss sharing with the Shari’a rules.

8.4.8.8. For protection of the Sukuk holders’ rights, the Sukuk originator is responsible for the validity, accuracy and comprehensiveness of all data, information, documents and declarations contained in the issuance prospectus. The intentional concealment of the above or its mis-representation shall trigger the liability of the Sukuk originator.

8.4.8.9. Investment Sukuk must be void of any clause to the effect of the liability of the Mudareb, the partner or the investment agent for any taxes imposed on the Sukuk returns or for any currency exchange price differences.

8.4.8.10. AAOIFI Shari’a and accounting standards shall repre-sent the binding reference for whatever general rules and principles not covered in this Sukuk standard.


8.4.9. Shari’a Rules for The Issuance of Sukuk 8.4.9.1. The Special Purpose Vehicle

8.4.9.1.1. It is permissible for the issuance of Sukuk to be handled by a special purpose vehicle that has a financial liability that is independent of the lia-bility of the Sukuk originator or owners for the purpose of acting as the Sukuk holders’ trustee in holding title of the Sukuk assets, and as their agent in directing the Sukuk issuance realized funds towards investing them in what they were issued for, and for the purpose of contracting with the investors of the Sukuk proceeds.

8.4.9.1.2. The SPV may not be owned or managed by the Sukuk originator (the user of the Sukuk pro-ceeds) if this shall result in breach of Shari’a rules, like in cases that involve sale or lease to one’s self or involve conflict of interest as in the scenario of the Ijarah sukuk originator selling to the SPV leasable assets, or their usufruct, then leasing them back within a period that does not normally experience a change in their market price.

8.4.9.1.3. An audited Financial Statements for the SPV must be annually prepared.

8.4.9.2. Stipulating and Incentive for the Sukuk Manager 8.4.9.2.1. The Prospectus and its documents may state

that the Sukuk manager is entitled to all or part of the profit that exceeds a certain level as an incentive for his good management, in addition to the fees or profit share he is originally enti-tled to.

8.4.9.2.2. The Sukuk manager’s incentive is to be worked out for the Sukuk term upon the maturity of the Sukuk; however, it is permitted to advance to the Sukuk manager some payments on the account of the incentive during the Sukuk terms and prior to their maturity. These advanced payments shall be offset against the realized incentive upon the maturity


of the Sukuk. It is permitted, however, to finally calculate and pay the incentive for each profit distributing period after a constructive liquidation.

8.4.9.3. Giving Prizes on Investment Sukuk 8.4.9.3.1. It is not permitted for the Sukuk manager (as

Mudareb, partner or investment agent) to dis-tribute prizes on lot basis to the Sukuk hold-ers from the profit distributable to them, since they are partners and assigning some profit to some partners is against the very spirit of profit sharing.

8.4.9.3.2. It is permitted, however, for the Sukuk man-ager to distribute prizes from his own fund pro-vided the distribution is on pure donation basis and it is not the primary objective of the Sukuk issuance.

8.4.10. Sukuk Guarantees 8.4.10.1. General Rules

8.4.10.1.1. Investment in Sukuk is an investment in real ownership whereby Sukuk holders bear the risk of the assets in which the subscription realized fund is invested, such as investment in stocks or funds. Thus, Sukuk do not rep-resent debts liability upon their issuer towards their holders. This, in fact, necessitates the following:

8.4.10.1.1.1. Sukuk holders bear the risk and reap the fruits of the assets in which the subscription proceeds are invested.

8.4.10.1.1.2. Neither the Sukuk issuer, nor the Sukuk man-ager or the user of the subscription proceeds through one of the investment contracts like Mudaraba, Musharaka or Wakala Bil Istithmar, is permitted to guarantee for the Sukuk holders the face value of their Sukuk or a certain return on their investment. Otherwise, the very issu-ance and its underlying contract become null and void.


8.4.10.1.1.3. The meaning of guarantee in this context is to guarantee the value of the Sukuk assets when they get destroyed or damaged, or when they fully or partially lose their value, without any misconduct, negligence or breach of the issu-ance conditions on the part of the guarantor. Nevertheless, the Sukuk manager shall be liable fo rthe value of the Sukuk assets in these cases unless he proves that their occurrence was for reasons beyond his control, and which he could neither anticipate nor avoid.

8.4.10.1.2. It is permitted for the Sukuk manager to give an undertaking to buy the Sukuk assets at any value except the face value. This undertak-ing, however, does not bind the undertaker in cases of full or partial damage. This is because the undertaker is bound by his purchase under-taking only if the assets remain in existence at the time of the purchase execution, while if the assets have been destroyed or damaged then the undertaking is not executable, because sell-ing non-existing assets is invalid.

8.4.10.1.3. The investment Sukuk manager is obliged to physically or constructively liquidate the Sukuk assets upon the maturity of the Sukuk as per the market practice and to refund the capital as well as the realized profit, unless he proves that the Sukuk assets have been damaged or have lost value for reasons beyond his control.

8.4.10.1.4. It is permitted for the holders of investment Sukuk to obtain from a third party, by virtue of an independent document, a binding prom-ise to purchase the Sukuk assets on a certain time or upon the maturity of the Sukuk. It is permitted as well for this promise to originate from the Sukuk manager so that he under-takes to buy the Sukuk assets described in the undertaking at one of the permitted values; the market value, the value agreed upon at the


time of executing the purchase, the net assets value, a fair value or the value determined by the market experts at the time of executing the promise.

8.4.10.2. Guarantee in Finance and Ijarah Sukuk 8.4.10.2.1. The originator of finance Sukuk (Murabaha,

Istisna’ and Salam Sukuk) may guarantee the price in Murabaha and Istisna’ sales and the very Salam commodity, because these repre-sent a debt liability on his part so stipulating such guarantee is a confirmation of a legiti-mate right, and a third party may guarantee the Sukuk originator in repaying the said debt.

8.4.10.2.2. The originator of Ijarah sukuk cannot guarantee the assets or usufructs he has sold to the Sukuk holders then respectively leased or bought them back. Furthermore, he cannot assume respon-sibility of their total loss, damage or value depreciation after delivering them to the Sukuk holders or their representative, because liability shifts with transfer of ownership.

8.4.10.2.3. It is permitted to appoint the seller of the assets or the usufructs as a service agent for the Sukuk holders against a fixed fee plus an incentive.

8.4.10.3. The Promise To Purchase in Murabaha and Istina’ 8.4.10.3.1. This promise binds the promising party and

not the beneficiary; however, the promising party may not be forced to execute its prom-ise, but the beneficiary has the right to demand indemnity for any actual harm resulting from the non-fulfillment of the promise. The actual harm shall correspond to the difference between the cost of acquiring the assets and their selling price when sold to a third party.

8.4.10.3.2. The promise shall not bind its giver unless it is given on something known by descrip-tion, and which shall remain as per description until the time of executing the promise. If it


was damaged or disposed of, then the prom-ise would not bind its giver since purchase of non-existing assets is invalid.

8.4.10.4. Undertaking of Purchase at Price Equivalent to the Remaining Unpaid Fixed Rental (The Non-managing Lessee’s Undertaking) The non-managing lessee may undertake to purchase the Ijarah Muntahia Bettamleek Sukuk assets at a value equivalent to the remaining unpaid fixed rental (fixed rentals balance), regardless of whether the leased assets were originally bought from the same lessee of from a third party, and this does not amount to guarantee-ing the capital or the profit to the Sukuk holders (nor a non-independent third-party guarantee if the Sukuk manager was the one who sold the leased assets to a third party).

8.4.10.5. Guarantees in Investment Sukuk Manager of investment Sukuk may guarantee the value of the Sukuk assets in case of breach of the agreement (cases of breach of the requirements of trust, negli-gence or misconduct in respect to taking the appropriate investment decisions which should normally be expected of an investment expert) or the investment rules stipu-lated by the Sukuk holders. The guarantee shall be of the capital alone and in accordance with the general rules of guarantees.

8.4.10.6. The Commitment to Liquidate the Sukuk Assets and Refund the CapitalThe Sukuk issue, who utilizes the Sukuk issuance pro-ceeds, is obliged to liquidate the assets of Mudaraba, Musharaka or Wakala Bil Istithmar upon the matu-rity of the Sukuk, and to refund the capital as well as the realized profit to the Sukuk holders. If he claims damage, loss or impairment in the market value of the Sukuk assets, the burden of proof shall lie on his shoul-der to suggest that the occurrence of these incidents was not the result of his breach of the requirements of


trust, negligence or misconduct in respect to taking the appropriate investment decisions which should normally be expected of an investment expert.

8.4.10.7. Lending Undertaking by the Investment Sukuk ManagerIt is not permitted for the Sukuk manager (as Mudareb, partner or investment agent) to undertake to lend the Sukuk holders in case of shortfall in the Sukuk assets expected returns, for this involves the prohibited com-bining of a commutative contract with a loan contract. It is permitted, however, for the Sukuk manager to source a Shari’a compliant financing or an interest-free loan in order to cover the shortfall. In this case, the Sukuk manager shall claim the same amount from the future profit of the selling price of the Sukuk assets.

8.4.10.8. Lending Undertaking by the Finance Sukuk ManagerThe Sukuk manager or the Sukuk issuer of finance Sukuk (Sukuk of assets, usufructs or rights of utilization) may give an undertaking independently of the contracts to offer an interest-free loan to the Sukuk holders in case of shortfall in the Sukuk assets expected returns, because in this case the Sukuk manager can be deemed as a third party.

8.4.10.9. Guarantee of a Determined Profit for the Sukuk Holders by the Sukuk ManagerThe manager of investment Sukuk may not guarantee for the Sukuk holders a certain profit as a fixed amount or as a percentage of the capital, because this guaran-tee nullifies profit sharing, the underlying principle of investment.

8.4.11. Details of Sukuk Rules8.4.11.1. Ijarah Sukuk

8.4.11.1.1. It is permitted that the Sukuk holders buy the Sukuk leaseable assets then lease them to their original seller on Ijarah Muntahia Bithamleek basis against fixed and variable rents. This


practice cannot be deemed unlawful Eina or Wafa’ sale should the following be observed:

8.4.11.1.1.1. The sale is genuine, and it transfers both title and liability.

8.4.11.1.1.2. The Sukuk holders are liable for the ownership risks so that the Ijarah is terminated in case of total loss of the leased assets, and the lessee has the right to demand a reduction in the rent proportionate to the loss in case of a partial loss that impacts the intended usufruct, if not caused by the lessee.

8.4.11.1.1.3. The Sukuk holders and not the lessee, whether directly or indirectly are genuinely liable for the burdens and expenses that are associated with ownership, like payment of the insurance pre-miums, major maintenance and taxes.

8.4.11.1.1.4. The Sukuk holders have the absolute legal right in the disposal of the Sukuk without any restrictions.

8.4.11.1.1.5. The Sukuk assets are saleable according to the official laws.

8.4.11.1.1.6. The sale and lease contracts are not linked together, the lease is not stipulated in the sale contract and the payment of the price is not conditional on payment, or non-default in pay-ment, of the rent.

8.4.11.1.1.7. One year at least must have passed from the lease of the assets to their title transfer to the lessee.

8.4.11.2. Elements of Ownership 8.4.11.2.1. Shari’a recognizes the complete ownership that

involves both title and usufruct of the asset as well as the incomplete one that involves either the usufruct or the title. Segregation between the title and the usufruct is feasible in contracts like sale and bequest. However, the subject matter of the sale contract corresponds to the complete ownership of both title and usufruct, while the subject matter of the lease contract


corresponds to the incomplete ownership of the usufruct only and not the title.

8.4.11.2.2. Sukuk holders are liable and fully responsible for the leased assets in terms of both title and usufruct or usufruct only since they are the owners of these assets.

8.4.11.2.3. The objective of Ijarah sukuk is to convert the Ijarah underlying usufruct into securities (Sukuk) so that they can be traded in the sec-ondary market.

8.4.11.2.4. Each Ijarah sakk represents a common share in the ownership of the usufructs of the tangible assets before these usufructs are sold to a third party. However, after the sale of these usufructs the sakk represents the rent, which becomes a receivable payable by the lessee and thus, sub-ject to Shari’a rules of sale of debt.

8.4.11.2.5. Ijarah sakk does not represent a certain amount of money or a debt liability upon a particular party, but rather a security representing a com-mon share in the ownership of the usufruct of a tangible asset, like a real estate property, a plane or a vessel.

8.4.11.2.6. It is permitted to issue and trade in the Sukuk that represent ownership of leased, or to be leased, tangible assets as long as these assets have fulfilled Shari’a conditions pertaining to the leasable assets, like a real estate prop-erty, a plane or a vessel and the like, and the sakk represents a genuine ownership in these income-generating assets.

8.4.11.2.7. The owner of a sakk can sell it in or out of the secondary market to any buyer other than its issuer—notwithstanding the issuer’s right to redeem it upon or before maturity as per Shari’a rules—at any agreed price, whether equal, higher or less than its issuing price, based on the market factors of demand and supply.


8.4.11.2.8. The sakk owner is entitled to his share in the return, i.e. the rent, according to the rent pay-ment schedule outlined in the Prospectus and the lease contract (after deduction of the sakk’s corresponding share in the applicable expenses as outlined in the Ijarah contract).

8.4.11.2.9. Being the owners of the usufruct, the holders of assets Sukuk and usufructs Sukuk, may issue Ijarah sukuk representing undivided shares in the usufructs they came to own by virtue of owning the tangible assets or their usufructs for the purpose of subleasing the same with the permission of the original lessor. However, this is circumscribed with the issuance of the Sukuk being prior to signing the lease agreements with the new lessees, whether the lease is for a rent equivalent, higher or less than the first rent. In case signing the lease agreements was prior to the Sukuk issuance, the Sukuk become then untradeable unless with observing the rules pertaining to sale of debt.

8.4.11.2.10. The seller of the usufruct may not guaran-tee the face value of the sakk or its return. Moreover, the owners who lease their assets are liable in case of full or partial damage of their assets.

8.4.11.2.11. The leased assets may be already owned by the Sukuk originator at the time of issuance, or a liability on its part, i.e. he/she will come to own them based on a sale, Istisna’ or any other contract. Nevertheless, Sukuk holders own the usufruct of these assets once the lease contract is signed and thus, they become entitled to the rent payable in the sublease contract. However, these Sukuk of assets leased on the basis of lia-bility by description are not tradable unless the assets have been delivered.

8.4.11.2.12. Sukuk of ownership of tangible assets and Sukuk of ownership of usufructs of tangible


assets are issued on the basis of a valid sale con-tract that transfers the ownership from both Shari’a and legal perspectives. However, in this sale contract it is a must that:

8.4.11.2.12.1. The sale is genuine and genuinely transfer-ring to the Sukuk holders the complete or the incomplete ownership of the asset form both Shari’a and legal perspectives, and thus it bestows on the Sukuk holders all privileges of ownership to conduct all legally valid acts on the asset itself of its usufruct with no restriction whatsoever.

8.4.11.2.12.2. The object of sale (the Sukuk assets) is among the saleable assets, and its title can be trans-ferred from both legal and Shari’a perspectives to the Sukuk holders or the agent that repre-sents them. As a result, the following shall take place:

8.4.11.2.12.2.1. The assets (sold) become no longer the property of the seller, and in his finan-cial statement they appear off-balance sheet.

8.4.11.2.12.2.2. The right of the Sukuk holders attaches to the Sukuk assets to which they hold title (the Sukuk assets) and not the lia-bility of the Sukuk originator who sold the assets.

8.4.11.2.12.2.3. The Sukuk holders shall have the right to exercise on the Sukuk assets all the legally valid acts like sale, lease back to the seller and the likes, with no restrictions.

8.4.11.2.12.2.4. The purchase undertaking given by the lessee of the Sukuk assets shall bind the promising party only so that the Sukuk holders are not obliged to sell to him these assets. Moreover, the giver of the purchase undertaking shall not be bound to pay the price when


the purchase undertaking becomes no longer executable and for reasons not attributable to him. If, however, they are attributable to him, then he is lia-ble for the actual loss if any.

8.4.11.2.12.2.5. The sale undertaking given by the Sukuk holders as owners of the assets shall bind them to sell the assets to the lessee, but the later shall not be obliged to buy the asset from them. This sale undertaking, however, can be on the nominal value of the leased assets.

8.4.11.2.12.3. It is not permitted to have bilateral promises from the lessee to buy and from the Sukuk holders to sell if the object of promises, the time for their execution and the remaining con-ditions are the same.

8.4.11.2.12.4. If the assets have already been leased, then they cannot be leased again unless the new lease contract will start upon the expiry of the cur-rent lease, and any payment made before the start of the lease will be deemed as payment on account. An arrangement however can be made to replace the lessor by canceling the current lease contract, executing the new lease then reinstating the old lessee based on a new lease contract.

8.4.11.3. Sukuk of Ownership of Leased or to be Leased Assets

8.4.11.3.1. The Sukuk of ownership of the leased assets or the asset to be leased represent the right of their holders in the ownership of the assets. They grant them the right over the proceeds from the sale of these assets or the sale of their usufructs.

8.4.11.3.2. The underlying assets of the Sukuk of owner-ship of tangible assets must be owned by their seller when selling them to the Sukuk holders.


When selling them on Istisna or Salam basis, the assets must have been established as liability by description on the seller.

8.4.11.3.3. The title to these assets must be transferred to the Sukuk holders by virtue of a valid title-trans-ferring sale, and the Sukuk holders must come to possess them physically or constructively.

8.4.11.3.4. The holders of these Sukuk shall become lia-ble for the assets represented by these Sukuk (their damage and loss) each in proportion to the number of the Sukuk he holds, and they shall enjoy their gains and privileges (proceeds, return, rents and profits) according to the terms outlined in the Prospectus and the issu-ance contracts.

8.4.11.3.5. The holders of these Sukuk, with the obser-vance of the above rules and conditions, may lease these assets after they come to own and possess them, or lease them on forward lease basis, i.e. before possessing them regardless of whether the lease is to their original seller or to a third party, and whether it is operating lease or Ijarah Muntahia Bittamlik.

8.4.11.3.6. The seller of the Sukuk assets may be appointed as Mudareb against a share in the profit, or as an agent on behalf of the Sukuk holders to manage these assets against fixed fees plus and incentive for good management.

8.4.11.3.7. The seller of the assets, who then leases them on operating leases basis, may unilaterally undertake to redeem these assets Sukuk upon their maturity through purchasing the assets (Sukuk assets) on the price agreed upon at the time of executing the purchase. Alternatively, the price could be a market price, a fair price, or the net value of the assets or their face value. However, this undertaking binds him alone and not the Sukuk holders, and it can be given by a third party on any price.


8.4.11.3.8. It is permitted to trade these Sukuk, for they represent claims to tangible assets (already leased or to be leased at a later stage). When traded, the title to these assets represented by the Sukuk is transferred from the seller to the buyer along with their rights and obligations.

8.4.11.3.9. As owners of the assets represented by the Sukuk, the Sukuk holders have the right to conduct on these assets all valid acts, in accordance with the Shari’a compliant issuance contracts and in ways that do not harm others’ rights.

8.4.11.3.10. The lessee of the assets represented by the Sukuk may undertake in a separate document to purchase these assets in case he has defaulted on meeting his financial commitments toward the Ijarah agreement. The purchase price in this case could be any price agreed upon at the time of executing the purchase; the market price, a fair price or a price equivalent to the net assets value or the face value.

8.4.11.4. Sukuk of Usufructs 8.4.11.4.1. These Sukuk represent their holders’ right in

the ownership of the usufructs, and not the title, of the assets to be leased, and they entitle their holders to the proceeds realized from the sale of the assets’ usufruct.

8.4.11.4.2. The usufruct represented by the Sukuk must be owned by its seller when it is sold to the Sukuk holders, so that he/she either owns the asset whose usufruct is to be sold or the usufruct alone and not its underlying asset. If the usufruct is already sold to a third party then issuing Sukuk against this usufruct is not allowed since the usufruct no longer belongs to its seller.


8.4.11.4.3. The usufructs represented by the Sukuk may be usufructs of assets that are established as a liability by description on the seller’s part to deliver them on the date determined in the lease contract.

8.4.11.4.4. The ownership of the usufructs represented by the Sukuk must be transferred from the seller of these usufructs to the Sukuk holders, who buy them through a lease contract.

8.4.11.4.5. The holders of these Sukuk shall become solely liable for the damage or loss of these usu-fructs, each in proportion to his share in these usufructs, and they shall enjoy their gains and privileges (the rent) according to the terms outlined in the Prospectus and the relevant Sukuk contracts.

8.4.11.4.6. The Sukuk holders may sell the whole usufruct represented by the Sukuk (for its whole dura-tion) through a usufruct-selling contract or only a part thereof (part of its duration).

8.4.11.4.7. The seller of the assets’ usufructs represented by the Sukuk may be appointed as an agent on behalf of the Sukuk holders to manage the usufructs against fixed fees plus an incentive corresponding to the amount in excess of a cer-tain rent limit, or to appoint him as Mudareb against a share in the profit.

8.4.11.4.8. The seller of the usufruct may unilaterally undertake to purchase at a determined price the remaining usufruct (the duration of the usu-fruct) upon the maturity of the Sukuk.

8.4.11.4.9. It is permitted to trade Sukuk of usufructs of assets (for whatever price before selling the usufruct) for they represent the usufructs ownership. When traded, the title to these usufructs represented by the Sukuk is transferred from the seller to the buyer along with their rights and obligations.


8.4.11.4.10. The holders of Sukuk of usufructs of assets have the right to sell or lease these usufructs. Restriction to this right is not permitted except in accordance with the issuance contracts and in ways that do not harm others’ rights.

8.4.11.4.11. The holders of these Sukuk may undertake in a separate document to gift or sell on a deter-mined price the assets’ usufructs represented by the Sukuk to the original seller of these usu-fructs or to a third party. The sale is executed then on the remaining duration of the usufruct. However, this sale is not permitted if the Sukuk holders have already sold or leased the usufruct, because the seller must be the owner of what he sells and the Sukuk would represent then the price of the usufruct or the rent, which is a debt liability upon the lessee so it is subject to the rules pertaining to sale of debt.

8.4.11.5. Sukuk of Ownership of Usufructs of Specified Assets 8.4.11.5.1. They are the Sukuk originated by the owner

of a particular asset with the aim of leasing the asset or selling its usufruct for a specified period and receiving the rental from the subscription proceeds so that the ownership of the usufruct of the assets passes to the Sukuk holders.

8.4.11.5.2. They are also the Sukuk originated by the owner of a usufruct of a specified asset (the lessee) who leases the asset with the aim of subleasing it and receiving the rental from the subscription proceeds so that the usufruct of the assets passes into the ownership of the holders of the Sukuk.

8.4.11.5.3. These Sukuk are issued on the basis of a sale of the right to the usufruct, not the corpus of its underlying specified asset, for a specified period. This right attaches to the asset and not the liability of the seller who originates the Sukuk, and it reflects an incomplete ownership for the Sukuk holders.


8.4.11.5.4. All sale contracts transferring title to assets or assets’ usufructs and all lease contracts which give Sukuk holders the direct right of assets’ utilization must fulfill the following conditions:

8.4.11.5.4.1. The contracts are genuine so that they transfer the ownership of the assets and the usufructs to the Sukuk holders. They shall also give Sukuk holders the right to conduct on them all the legally valid acts. They shall not include any conditions that contradict the nature of these contracts or their Shari’a objective, rendering otherwise the contracts fictitious or conducive to Reba or ‘Eina.

8.4.11.5.4.2. The sale or lease contract is capable of pro-ducing its legal effect so that the object of the contract (the sold or the leased asset) admits all acts of disposal, including transferring its title from its seller to the Sukuk holders from both legal and Shari’a perspectives.

8.4.11.5.5. Based on the above: 8.4.11.5.5.1. The ownership of the underlying Sukuk assets

and usufructs should be removed from the books of the seller so that on its financial state-ment they appear off-balance sheet, and thus they become the property of the Sukuk holders rendering them the right to conduct on them all valid acts.

8.4.11.5.5.2. The right of the Sukuk holders in the assets or the assets’ usufructs, which are acquired with the funds realized from subscription, attaches these very assets and not the liability of the Sukuk issuer who sold or leased these assets.

8.4.11.6. Sukuk of Human Labor (Service Ijarah Sukuk) Sukuk of service ijarah give their holders the right to own a service provided by the Sukuk originator (the ser-vice provider) against the Sukuk issuance proceeds and to sell this service and claim its price from its buyer of final user. The services represented by these Sukuk may


be obtained from a specified service provider or from an unspecified one.

8.4.11.7. Sukuk of Services Supplied a Specific Provider These Sukuk are issued with the aim of purchasing as specific service from a particular provider, like the service of education from a particular university or medical treat-ment by a particular doctor and the price of the service is paid through the subscription proceeds. The services purchased become the property of the Sukuk holders so they have the right to sell them to a third party (the ser-vice receiver) against an agreed-upon price or fee.

8.4.11.8. Sukuk of Services Supplied Unspecified Provider 8.4.11.8.1. These Sukuk are issued with the aim of pur-

chasing a service established as liability by description without specifying its provider, with its price being paid with the proceeds from subscription. The service purchased becomes the property of the Sukuk holders so they have the right to sell a service of the same specifi-cations through a parallel forward (Mawsufa Bithimma) lease to a third party (the service receiver) against an agreed-upon price or fee.

8.4.11.8.2. The ownership of these services is immedi-ately transferred from their provider to the Sukuk holders through a sale or lease contract. Alternatively, the owner of services, who has not utilized them yet, may sell them to the Sukuk holders against a determined price or fee. However, the services sale or lease contract must fulfill its all Shari’a rules and conditions.

8.4.11.8.3. Service Sukuk holders shall alone bear their Sukuk risks, each to the proportion of the num-ber of Sukuk he holds, and they shall also enjoy the Sukuk gains and privileges according to the terms outlined in the prospectus and the issuance contracts.

8.4.11.8.4. The seller of the services may undertake in a separate document to purchase the unutilized


services, or the remaining period of the ser-vices, at a fair price, market price, any price agreed upon at the time of executing the pur-chase or at the face value. Similarly, the Sukuk holders may undertake in a separate document to sell at any of these prices the unutilized ser-vices or the remaining period of the services to the original seller of the services.

8.4.11.8.5. It is permitted to trade the Sukuk service before and not after the sale or the full utilization of these services, for they represent title to these ser-vices. When traded, title to these services or the remaining period thereof is transferred from the seller to the buyer along with its rights and obli-gations. Sukuk of forward (Mawsufa Bithimma) services are also subject to the same rules.

8.4.11.8.6. If only part of the Sukuk services has been sold or utilized, then the ratio of this part to the unsold one must be taken into consideration for the tradability of these Sukuk, so that the selling price of the later part is not equivalent to the face value of the Sukuk, since this may render the very transaction fictitious.

8.4.11.8.7. The holders of services Sukuk have the right to dispose of the unutilized part of the services or their remaining period. Imposing any restric-tion to this right is not permitted.

8.4.11.8.8. The services Sukuk holders may undertake to gift, sell or lease to the original seller the remaining unutilized services, or the remaining duration of the services, for the price referred to in clause (4). The sale, however, is not per-mitted if the services have already been utilized or sold to others, because the seller must be the owner of the what he sells, and Sukuk represent in this case the due price or fee of the service, which is a debt liability upon the other.


8.4.11.8.9. The seller of a service for a specific period of time may undertake in a separate document to buy the remaining period of the services at a price determined in the very sale undertak-ing, provided it is reasonable for such remain-ing period. This is in order for the sale not to be fictitious like when the service of a ten-year period is sold for one thousand, then bought when only one year is remaining for one thou-sand as well.


Appendix d: GloSSAry

Glossary for Arabic terms implemented in Islamic banking used in the book1 : There are many Arabic terms implemented in the Islamic banking and finance used in this book, we mention a few of them in this glossary as follows.

Mudharabah (Profit-Sharing)

• Refers to an agreement made between a capital provider and another party who acts as the entrepreneur. This arrangement will enable the entrepreneur to carry out business projects and profits are distributed based on a pre-agreed profit sharing ratio. In the case of losses, the losses are borne by the provider of the funds.

Musharakah (Joint Venture)

• Refers to a partnership or joint venture for a specific business, whereby the distribution of profits will be apportioned according to an agreed ratio. In the event of losses, both parties will share the losses on the basis of their equity participation.

1Bank Negara Malaysia. See: www.bnm.gov.my.

http://www.bnm.gov.my

270 APPENDIX D: GLOSSARY

Murabahah (Cost Plus)

• Refers to the sale of goods at a price, which includes a profit margin as agreed to by both parties. Such sales contract is valid on the con-dition that the price, other costs and the profit margin of the seller are stated at the time of the agreement of sale.

Bai’ Bithaman Ajil (Deferred Payment Sale)

• Refers to the sale of goods on a deferred payment basis at a price, which includes a profit margin agreed to by both parties.

Bai’ Al-Dayn (Debt Trading)

• Refers to the buying and selling in the secondary markets of debt certificates, securities, trade documents and papers which are Shariah compliance. Only documents evidencing real debts arising from bona fide merchant transactions can be traded.

Bai’ Al-Inah (Sell and Buy Back)

• It refers to a contract which involves sell and buy back transactions of an asset by a seller to the customer. The seller will sell the asset on cash basis but the customer will buy back the asset on deferred payment at a price higher than the cash price.

Ijarah Thumma Al-Bai’ (Leasing and Subsequently Purchase)

• Refers to an Ijarah (leasing/renting) contract to be followed by Bai’ (purchase) contract. Under the first contract, the hirer leases the goods from the owner at an agreed rental over a specified period. Upon expiry of the leasing period, the hirer enters into a second contract to purchase the goods from the owner at an agreed price.

Ijarah (Leasing)

• Refers to an arrangement under which the lessor leases equipment, building or other facilities to a client at an agreed rental fees or charges, as agreed by both parties.

Qard (Interest-Free Loan)

• A loan extended on a goodwill basis and the borrower is only required to repay the principal amount borrowed. However, he may pay an extra amount at his absolute discretion, as a token of appreciation.

APPENDIX D: GLOSSARY 271

Bai’ Salam (Future Delivery)

• Refers to an agreement whereby payment is made in advance for delivery of specified goods in the future.

Bai’ Istijrar (Supply Contract)

• Refers to an agreement between the client and the supplier, whereby the supplier agrees to supply a particular product on an on going basis, for example monthly, at an agreed price and on the basis of an agreed mode of payment.

Kafalah (Guarantee)

• Refers to a contract of guarantee by the contracting party or any third party to guarantee the performance of the contract terms by contracting parties.

Rahnu (Collateralised Borrowing)

• Refers to an arrangement whereby a valuable asset is placed as col-lateral for debt or right of claim. The collateral may be disposed in the event of default.

Wakalah (Nominating Another Person to Act)

• Refers to a situation, where a person nominates another person to act on his behalf.

Hiwalah (Remittance)

• Refers to a transfer of funds/debt from the depositor’s/debtor’s account to the receiver's/ creditor's account whereby a commission may be charged for such service.

Sarf (Foreign Exchange)

• Refers to the buying and selling of foreign currencies.

Ujr (Fee)

• Refers to commissions or fees charged for services.

Hibah (Gift)

• Refers to gifts award voluntarily in return for any transactions given or provided.


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AAccounting and Auditing

Organization for Islamic Financial Institutions (AAOIFI), 2, 12, 20, 21, 38, 40, 42, 44, 45, 65, 68, 71, 73, 76, 81, 88–94, 101, 102, 109, 118–120, 122, 124, 125, 128–130, 132, 141, 143, 144, 146, 173–175, 178, 179, 208, 249

Agency agreement, 56, 150, 152, 154–160, 172–174, 177

Agreement, 2, 30, 54, 56, 66, 69, 71, 74, 80–82, 89, 95, 97, 104, 113, 119, 121, 125–128, 130, 131, 133, 136, 141, 149–152, 156–158, 165, 167, 172–177, 179, 181, 189, 193, 194, 198, 201, 202, 219, 234, 254, 269–271

Asset-backed securities (ABS), 8, 52–54, 56, 223, 229, 232

Asset-backed Sukuk, 50, 52, 53, 222, 226

Asset-based Sukuk, 49–51, 222, 223, 225

Asset risk, 43

Assets, 1–3, 5, 8, 9, 12, 20, 21, 27, 29, 30, 37–42, 46, 50–53, 55–57, 61, 64–67, 69, 71, 77, 88, 95–100, 102–109, 115, 117, 122, 123, 126, 134, 146, 149–155, 158–160, 168, 169, 172, 176–181, 183, 188–190, 192–196, 198, 200, 204, 208–210, 212, 218, 219, 221–234, 237–242, 244–248, 250–265

BBank Negara Malaysia (BNM), 22, 60,

93–95, 136Benefit, 2, 4, 8, 13, 22, 23, 53, 57,

58, 61, 87, 89–92, 99, 103, 108, 114, 122, 133, 150, 152, 157, 177, 178, 196–198, 219, 223, 224

Binding promise, 93, 141, 171, 179, 209, 222, 224, 228, 252

Bonds, 1, 5, 6, 8, 9, 15, 22, 27, 29, 37, 39, 42, 44, 45, 47, 52, 71, 81, 144, 193, 210, 221

Bursa Malaysia, 12, 16, 23, 159, 217

index

282 INDEX

172, 176, 178, 181–185, 187, 197, 204, 208–213, 261

Funding, 3, 4, 29, 33, 50, 53, 55, 57, 69, 76, 100, 184, 187, 191, 193, 221

GGharar, 13, 29, 120, 122, 125, 130,

142, 171, 209Guarantee, 14, 15, 44, 67–69, 94,

96, 97, 100, 130, 132, 133, 140, 146, 155–157, 167, 172, 179, 180, 195, 201, 202, 211, 212, 243, 246, 251–255, 258, 271

HHybrid Sukuk, 33, 49, 64–67, 85

IIjarah, 1, 2, 5–7, 21, 24, 31, 40–44,

46, 49, 64–66, 77, 78, 81, 87–96, 100–116, 126, 137–145, 149–161, 163, 166, 167, 169, 170, 172–176, 178, 180–184, 187–195, 197, 198, 200, 202, 203, 207–213, 215, 218, 222–227, 233, 234, 238, 250, 253, 254, 256–258, 261, 265, 270

Ijarah agreement, 79, 95, 150, 151, 153, 155, 156, 158, 160, 172, 174, 176, 181, 202, 203, 262

Ijarah Muntahia Bittamleek, 92Interest, 2, 5, 6, 8, 15, 38, 39, 42, 44,

53, 55, 62, 69, 90, 95–97, 119, 146, 150, 152, 153, 168, 177–179, 188, 194, 196, 211, 221, 224, 233, 247, 250, 255, 270

International Islamic Financial Market (IIFM), 12, 25, 26, 67

CCommodities murabahah, 42Compensation, 87, 94Contract, 5, 7, 15, 37–41, 43, 68, 71,

73–77, 81, 85, 87–95, 100–103, 110–134, 138, 139, 141–143, 149, 158, 171, 174–176, 178–180, 184, 194, 195, 197, 198, 200–202, 208, 209, 212, 218, 219, 237–242, 244–247, 251, 255, 256, 258–261, 263–266, 270, 271

Corporate advisor, 135Credit enhancement, 96, 97, 99, 222,

223, 225, 226, 229, 231, 232, 234, 235

DDefault, 6, 51, 52, 94, 132, 140, 150,

152, 153, 155–157, 159–162, 166, 167, 170, 172, 174, 177, 203, 223, 225, 228, 230, 245, 256, 271

Delivery, 40, 41, 73–75, 80, 81, 103, 113, 114, 117, 121, 123, 124, 128–131, 133, 163, 201, 237, 238, 271

EExchangeable Sukuk, 49, 57–59, 61,

62

FFee, 66, 71, 87, 100, 114, 154, 155,

160, 240, 253, 266, 267, 270Financial certificate, 37, 87, 95Forward lease, 2, 42, 43, 77, 87, 88,

102, 112, 114, 117, 120, 122, 134, 137, 139, 143, 145, 171,

INDEX 283

226, 231, 237–252, 254, 258, 259, 261, 262, 264, 266

Istisna, 41, 43, 46, 50–52, 64, 66, 76–81, 95, 96, 100–102, 112, 114, 115, 117–134, 137–139, 143, 176, 178, 194, 195, 200–203, 208, 227, 231, 238, 253, 258, 261

LLease, 2, 41, 55, 77, 79, 88–94, 97,

100, 102–104, 107, 138, 139, 141, 146, 150, 151, 153, 158, 171, 176, 178, 180, 184, 189, 192–194, 197–200, 202, 203, 209, 222, 228, 234, 238, 239, 250, 256–261, 263–267

Legality, 119, 142, 164

MMajallah, 87, 118

OObligator, 74, 103, 104Originator, 51–55, 57, 65, 67, 96–99,

103, 104, 134, 136, 138, 139, 178, 180, 183, 184, 218, 222–226, 228–234, 240, 242–245, 247–250, 253, 258, 259, 265

Ownership, 1–3, 5–9, 20, 21, 32, 38–41, 44, 50–54, 58, 59, 61, 62, 68, 71, 87–89, 92, 93, 96, 97, 100–102, 108, 109, 128, 133, 140, 142, 144, 146, 150, 152–155, 158–161, 171, 172, 175, 177, 178, 180, 189, 196–199, 209, 211, 218, 219, 221–223,

Investment bank, 103, 106, 135, 217Investment certificate, 2, 38Investment Sukuk, 3, 240, 248, 249,

251, 252, 254, 255Investor, 6, 12, 13, 31, 68, 103, 105,

106, 158, 178, 180, 182, 189, 198, 219, 230

Islamic capital market, 2, 11–13, 15–19, 22, 23, 27, 28, 34, 37, 47, 49, 89, 94, 101, 108, 110, 112, 145, 149, 185, 207, 210

Islamic commercial law, 89, 101, 117, 133

Islamic Development Bank (IDB), 66, 67, 194–197, 211

Islamic economics, 16, 17, 122Islamic finance, 1, 3, 4, 15, 19, 25, 26,

31, 38, 65, 67, 87, 89, 93–96, 100, 101, 110, 111, 116, 140, 187, 190, 207, 222, 227, 232

Islamic financial institutions, 12, 24, 38, 95, 120, 122, 127, 131, 134, 145, 146, 187, 211

Islamic Financial Services Board (IFSB), 12, 146, 208, 221–223, 227, 231, 232, 234

Islamic Fiqh Academy, 44, 45, 120, 125, 129, 141

Islamic Research and Training Institute (IRTI), 44

Issuance, 1, 2, 5–8, 11, 19, 21–25, 27–33, 39, 45, 47, 52–54, 57, 59, 61, 66, 67, 81, 82, 95, 99, 102, 103, 105, 106, 111, 117, 134–137, 143, 146, 149–151, 153–159, 162, 166, 170–174, 176, 178, 181–185, 187, 188, 190, 191, 193–195, 197, 198, 200, 203, 204, 208, 209, 211–213, 215, 221, 223, 225,

284 INDEX

RRating, 3, 6, 32, 53, 57, 66, 67, 96,

97, 99, 105, 135, 136, 145, 146, 155, 157, 188, 190, 193–195, 200, 209–211, 217, 222, 225, 231–234, 245

Redemption, 41, 56, 58, 66, 78, 107, 155, 157, 160, 172, 189, 209, 242, 243, 245, 246, 247

Rental, 8, 77, 88–94, 97, 102–104, 109, 112, 114, 115, 145, 150–153, 158, 166, 172, 176, 177, 180, 189, 193, 194, 199, 202, 218, 233, 234, 254, 264, 270

Riba, 3, 13, 29, 81, 132, 175, 176, 179

Risk management, 26, 34, 45, 132

SSalam, 41, 73, 74, 100, 101, 112,

114, 115, 118–123, 126, 129, 130, 139, 142, 176, 225, 227, 238, 253, 261, 271

Sale agreement, 81, 150, 152, 153, 155, 156, 159, 172, 174, 177

Secondary market, 2, 3, 11, 14, 15, 47, 64–66, 71, 74, 76, 81, 104, 107, 143, 144, 172, 181, 208–210, 228, 257

Securities Commission Malaysia, 28, 52, 95, 100, 149, 151, 176, 181, 215

Securitization, 8, 9, 47, 52, 54, 55, 87, 95–101, 134, 136, 189, 211

Shares, 1, 2, 6–9, 11, 13, 15, 38, 47, 57–63, 68, 71, 89, 101, 164, 241, 258

Shariah, 11–13, 15, 18–21, 25, 30, 37–40, 43–47, 61, 74, 81, 85, 88–91, 94–97, 100–103, 106, 149–151, 153–157,

225–227, 230, 237–241, 248, 251, 253, 256–260, 262–266

PPayment, 40, 41, 52, 59–61, 63, 65–

67, 74, 75, 77, 81, 90, 92–94, 100, 103, 104, 112, 114–117, 121, 123, 128, 131, 139, 142, 150, 152, 154–158, 160–162, 164, 166, 172, 177, 192, 197, 199, 212, 223, 225, 228, 230, 233, 245, 256, 258, 260, 270, 271

Permissible, 3, 11, 20, 39–42, 68, 76, 88–92, 100, 101, 113, 115, 123, 124, 126, 128, 133, 141–144, 175, 178–180, 183, 250

Principles Terms and Conditions (PTC), 149, 170, 172, 182, 212

Profit, 6, 15, 21, 24–26, 29, 30, 34, 38, 39, 42, 52, 66, 68, 69, 71, 73, 74, 82, 83, 96, 100, 131, 132, 145, 162, 166, 172, 179, 183, 210, 240, 243–245, 247, 249, 251, 254–255, 261, 263, 269, 270

Programme agreement, 156, 157, 172–174

Prohibition, 3, 12, 29, 76, 90, 114, 117, 124–127, 134, 141, 143, 175, 178, 179, 255

Promise, 40, 73, 92–94, 99, 108, 116, 118, 133, 141, 146, 155, 179, 253, 254

Property, 29, 50, 59–63, 68, 88–92, 97, 98, 116, 131, 196, 197, 199, 248, 257, 259, 265, 266

Purchase undertaking, 58, 59, 66, 67, 150, 152–154, 156, 159, 160, 170, 172–174, 177, 181, 202–204, 212, 252, 260

INDEX 285

Sukuk mudarabah, 68–70, 85, 101Sukuk mudharabah, 30, 33, 219Sukuk musharakah, 71, 72, 85, 101,

219Sukuk salam, 73–75

TTakaful, 5, 24, 150, 152, 154, 155,

160, 177Termination, 28, 95, 132, 224Tradability, 3, 107, 181, 203, 204,

209, 210, 227, 232, 245, 267Transaction documents, 150, 152,

153, 156, 162–170, 172, 173, 177, 212, 231

Trust, 2, 16, 17, 28, 31, 44, 53, 55, 56, 58, 61, 62, 66, 67, 101, 106, 134, 135, 150, 152, 153, 170, 177–181, 189, 191–197, 208, 211, 217, 218, 248, 254, 255

UUncertainty, 11, 29, 88, 120, 125,

143Usufructs, 2, 20, 38–42, 87, 102,

108, 109, 112, 114–116, 141, 143, 171, 209, 240, 241, 253, 255, 257–259, 261–266

WWa’d, 94Wakalah, 30, 32, 100, 180, 183, 219,

271Wealth, 12, 18, 22, 23, 26, 34, 207

160, 171–176, 178, 181–185, 207–210, 212, 213, 216, 218, 219, 270

Shariah Advisory, 100, 149, 151, 176, 218

Shari’ah compliance, 8, 13, 19, 29, 117, 124, 134, 135, 145, 146, 210, 211

Shariah compliant, 11–13, 28, 38, 39, 43, 52, 57, 61, 85, 178, 183, 207–209

Shariah contract, 51, 68, 85, 153, 172, 181, 207, 212

Shariah non-compliance risk, 43, 45, 46, 173

Shariah Standards, 2, 19, 38, 40, 42, 65, 68, 73, 76, 81, 88, 89, 91–93, 101, 102, 109, 173

Special Purpose vehicle (SPV), 6, 30, 52–55, 61, 62, 65–67, 69, 71, 73, 74, 77, 82–84, 96, 98, 99, 103, 104, 106, 134–138, 189, 191–194, 200–204, 241–243, 245, 247, 249, 250

Subject matter of, 76, 90, 101, 102, 114–118, 120–122, 124–129, 222, 256

Subscription agreement, 156, 158, 172, 174, 181

Sukuk, 1–9, 11, 12, 16, 19–34, 37–39, 41–47, 49–62, 64–74, 76–79, 81–85, 87, 95, 97, 100–112, 114, 117, 134–147, 149–167, 169–174, 176–178, 180–185, 187–195, 197–204, 207–213, 215–219, 221–229, 231–234, 237–267

Sukuk istisna, 43, 65, 67, 76–78, 218Sukuk market, 1, 4, 5, 19, 20, 22, 23,

25, 28, 30, 31, 34, 43, 45, 85, 102, 184, 207, 213, 221

Documents

A A: S c - Springer978-3-319-94262... · 2018-09-15 · Sukuk (plural of sakk), frequently referred to as “Islamic bonds”, are cer-ti˜cates with each sakk representing a proportional