Sukuk as alternative for infrastructure development
125554335
An Exploratory Study of Sukuk Utilisation for Transportation Infrastructure Development in Indonesia
Investment in infrastructure is one of the principa l drivers of the growth of the economy. For that r eason, the Indonesian government has proposed an investment bu dget in the railway and sea and air transport secto rs over the next 10 years. In order to overcome the burden of direc t outflows and for the future, a study was conducte d to lay down the framework of Shariah compliant payments for the dev elopment of infrastructure in Indonesia in the tran sport sector. This paper aims to explore the opportunity and impl ementation of sukuk utilisation to develop transportation infrastructure. Secondary data study and interviews were selected for the basic research method. This study presents the practice of sukuk implementation in transportation projects. Six tra nsportation projects are also described to gain ins ight of the utilisation shariah compliant financing sche me.
Fiona Lamari Ayomi Dita Rarasati Meilia Evita
166697952
Sukuk Markets: A Proposed Approach for Development
The issuance of sukuk, as an instrument in Islamic finance, has been growing in recent years. Many policy makers and businesses are looking at the sukuk markets as sources of long term financing. The paper identifies key issues impeding further development of sukuk markets globally, namely, standardization of structures and practices, investor protection concerns relating to insolvency and governance regimes, and market liquidity. The paper also offers approaches in developing domestic sukuk markets and in accessing the international market. The authors suggest that, in developing domestic sukuk markets, policy makers use a framework similar to that of the development of conventional bond markets, that is, by establishing (1) well functioning money markets, (2) efficient primary markets and securities offering regimes, (3) a robust and diversified investor base, (4) a market infrastructure that facilitates trading, price transparency, and efficient clearing and settlement of transactions, (5) derivatives market and hedging tools to support risk management by issuers and investors, and (6) a credible legal and regulatory framework. In accessing the international market, the issues policy makers or potential sukuk issuers should consider include awareness of and knowledge of sukuk, legal foundation, taxation, governance, and obligors' credit rating.
Ketut Ariadi Kusuma Anderson Caputo Silva
55681891
Contractual Enforceability Issues: Sukuk and Capital Markets Development
This article considers the development of sukuk as the mainstay element of the "debt" or finance side of the Islamic capital markets. The two general types of sukuk are described: whole business securitization sukuk; and asset secrutization sukuk. Differences between the conventional interest based markets and the Islamic finance markets in terms of risk/rewared expectations and the degree of recognition and incorporation (or disregard and non incorporation) of the Shari'ah in secular legal systems are noted. The effects of those differences on capital markets instruments and on certainty, consistence, predictability and transparency of outcome (and thus enforcement elements) are discussed. An English appellate court opinion (Shamil Bank v. Beximco) and its holding (which will not consider the Shari'ah as a legitimate governing law) are discussed. Enforceability and remedies legal opinions that are rendered in financing transactions are discussed, and some of the more vexing issues in rendering enforceability and remedies opinions in sukuk transactions are noted. These issues include true sale, non consolidation, bankruptcy/insolvency, collateral security, enforceability, choice of law, and enforceability of foreign judgments and awards. Finally, the article proposes a model code and model act concept to enhance enforceability of the Shari'ah. The proposal is based upon the model code and model act framework in respect of the National Conference of Commissioners on Uniform State Laws.
Michael J T McMillen
155784101
Sukuk Market: Innovations and Challenges
Sukuk products offer a vast scope of innovation and a large potential for the growth of Islamic finance. Various structures of sukuk based on ijarah, musharakah, mudarbah and many hybrids such as sukuk based on the combination of ijarah with istisna[ or the combination ijarah with istisna[ and murabahah etc. has evolved. Structures with convertibility features and those allowing the possibility of substitution of the underlying assets have also come in the market. However, these innovations have generated various Shari[ah, legal and economic issues and controversies. This paper discusses some of these important issues and challenges. Specifically, it deals with the issues of capital guarantee, contractual structures, pricing, and asset substitution in case of ijarah sukuk, musharakah sukuk, and their various forms. It also covers the issues pertaining to rating of sukuk, harmonization of Shari[ah rules, and problems involved in defining the governing law for sukuk issuance.
Muhammad Al-Bashir Al-Amine
157507884
Funding Development Infrastructure Without Leverage: A Risk Sharing Alternative Using Innovative Sukuk Structures
Muslim countries of the developing world suffer indebtedness resulting mostly from funding development infrastructure. Faced with a dire need for development infrastructure but with inadequate resources to fund them domestically, these governments often resort to foreign borrowing. As neither foreign banks nor international debt markets would allow for the debt to be in home currency, the funding is invariably denominated in foreign currency. For the borrowing country, in addition to currency exposure such borrowing increases the country's leverage and economic vulnerability. As these countries typically have a narrow economic base with heavy reliance on commodity exports, they are susceptible to the vagaries of commodity price fluctuation. Leverage increases the amplitude of the economy's fluctuation, resulting if not in outright crisis, then, at least in financial distress and depreciating home currency. As a result, when the foreign currency funded project comes on stream, it is burdened with huge accumulated debt which in many cases makes the project unmanageable without further government help through subsidy of operating costs. This further stresses already stretched government budgets and perpetuates indebtedness. This cycle of borrowing, leverage and vulnerability can be broken by innovative use of sukuk. The problem with debt financing is that the servicing requirements are independent of the underlying project's risk or cash flows. This paper presents two sukuk structures based on the risk sharing principles of Islamic finance. Sukuk that have returns linked to the nation's gross domestic product growth if the funded project is nonaEUR revenue generating and linked to earnings of the project if it is revenue generating can avoid the problems above. The payaEUR off profile, estimated cost of funds and returns to investors of these sukuk are discussed. When designed in small denomination, such sukuk can enhance financial inclusion, help build domestic capital markets and enable the financing of development without stressing government budgets.
Obiyathulla Ismath Bacha Abbas Mirakhor
146804858
Modelling Sukuk Structures in Indonesia: Economic Development and the Risk Management
Indonesia is one of the emerging markets for the development of the Islamic finance securitization i.e. sukuk. Beyond that, there is much need to be done for the growth of the sukuk market. Being country abundance with the natural resources, idle land and cultivated area should be seen as an opportunity to turn it into the assets securitization. This indirectly would inject liquidation to the Indonesian economic, perhaps to achieve efficiency in the whole economic sectors. Thus, objectives of this paper are to propose equity based sukuk structures for agriculture projects. Besides, several issues pertaining to the risk management of the sukuk also will be discussed in this study. Risk management is vital to be conferring as this would affect the liquidity position of the sukuk. The developments of the model oblige close and undivided attention, solely to avoid conflict with the prevailing thinking of Muslim investors. In addition, comprehensive understandings on the risk from the Islamic perspectives need to be further explored. Otherwise the fundamental parts will be remains abstract.
Roslina Mohamad Shafi Mohd Asyadi Redzuan
167329684
Sukuk Bond: The Global Islamic Financial Instrument
Global financial markets are volatile right now and will remain so for the next 2 years. Equity markets are shaky. Investors risk appetite is suddenly moving to commodities. Bond market is precarious as Sovereign debt risk goes high. Global economy is slowly moving into recession which will be either U or W Shaped. Recovery figures are questionable and are creating doubts among investors. So, where are we heading towards? As we navigate through treacherous times, Islamic financial market provides a new hope without speculation and exploitation of resources. The emergence of Sukuk Islamic Bond in the financial markets heralds a new era which can provide much needed financial stability and mitigation of risk in these arduous times. With advent of Sukuk in the financial world, the market players have got a new option to invest into this asset which hold considerable value and benefit for all. This bond promises to all investors an equitable return which is justifiable and above all safe for the strategic investment purpose.
Salman Ahmed Shaikh Shan Saeed
169973406
Towards Sustainable Development: Indonesia Project Based Sukuk for Infrastructure
Indonesia's economy the last few years has showed a good performance, although faced with the challenges of the global economy. However, the achievement of economic growth still has not been accompanied by equalization and adequate infrastructure. Infrastructure has an important role in supporting economic growth and thereby promotes to the reduction of economic disparity and poverty. Greater access of the poor to education and health services, water sanitation, employment, credit and markets produce is needed for creating sustainable and socially inclusive development. Recent innovation in project financing schemes to accelerate the provision of infrastructure is the implementation of sharia compliant financing. The issuance of Project Based Sukuk as an instrument for infrastructure financing has potential to enhance sustainable development. Thus, this study aims to determine the opportunities and challenges through descriptive analysis method. The result indicates that the challenges consist of investors aspects include: lack of understanding, averse to risk, market liquidity, and supporting aspects such as innovation and regulatory framework. Short term and long term strategies are applied including fundamental, technical, and roadmap strategy which are expected for the implementation of project based sukuk in the future.
Ni Wayan Srimani Puspa Dewi Yati Mulyati Yoga Tantular Dudi Abdulhadi
64308944
Risks of Sukuk structures: Implications for resource mobilization
This research deals with the evolution of and growing markets for sukuk (Islamic asset based securities) in emerging economies. The types of sukuk and their liquidity, credit, and market risk are discussed. Further refinements of the structures with embedded call and put options are analyzed in pursuit of risk management mechanisms that are, thus far, absent. The research is an attempt to discuss the risks of these growing financial assets and their role in the mobilization of resources and development of debt markets in emerging economies. (c) 2007 Wiley Periodicals, Inc.
Ali Tariq Humayon A Dar
158023467
How Do Sovereign Sukuk Impact on the Economic Growth of Developing Countries? An Analysis of the Infrastructure Sector
The lack of physical and technological infrastructure, as well as the low quality of human resources, have led to very low rates of foreign direct investment in developing countries. Indeed, infrastructure projects require huge amounts of investment which governments in those countries cannot fund from their own budgets. Meanwhile, foreign loans from international financial institutions come at a high price and with stringent conditions. Given the importance of infrastructure development for sustainable economic growth, there is a large demand in both emerging and frontier markets for a better alternative to conventional debt instruments. Although many developing countries have started using sovereign sukuk as a tool of fiscal policy in economic development, it is still difficult to find empirical studies that demonstrate the issuance of it for funding infrastructure projects as having an impact on a nation's economy. Thus, the author endeavours to determine whether sovereign sukuk issuances in the infrastructure sector affect the economic growth of developing nations.
A Y Malikov