...Banking Operations and Regulatory Framework Workshop Organized by Centre for Banking Studies, Central Bank of Sri Lanka 24 – 26 January 2012 Colombo – Sri Lanka Sukuk: Shariah Guidelines for Islamic Bonds Presented By: MOHD NAZRI BIN CHIK Member, Shariah Supervisory Council of Amana Bank Head of Shariah Division, Bank Islam Malaysia Berhad AGENDA o Overview on Sukuk o Fundamental Shariah Requirements o Sukuk Structure o Example of Sukuk Structuring and Shariah Issues o Sukuk Trading o Bank Islam and Amana Bank Involvements in Sukuk Structuring Capital Market: The Heart of A Nation’s Financial System Overall economy are divided into: Real sector – produces the nation’s output of goods and services Financial sector – providing financing needed to fund the real sector REAL SECTOR Surplus Units Households Corporate Government Foreign Investor FINANCIAL SECTOR REAL SECTOR Deficit Units Indirect Funding Banking System & Financial Intermediaries Capital Market Direct Funding Source: Adopted from Professor Dr Obiyathulla Ismath Bacha (2010) Households Corporate Government Foreign Investor Introduction to Sukuk (Islamic securities) and Sukuk Market Sukuk market is one of the fastest growing segments of the Islamic capital market (“direct funding market”). Usually translated as Islamic bond is the most active Islamic...
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...Sukuk can be defined as Islamic bond, it has been the most active Islamic debt market instrument. It is also known as the Islamic securities in the market today. Literally, Sukuk means certificates. Sukuk also can be defined as certificates of equal value that represent an undivided interest (proportional to the investor’s interest) in the ownership of an underlying asset (both tangible and intangible), usufruct, services or investments in particular projects or special investment activities. Through this concept, sukuk enjoy the benefit of being backed by assets, thereby affording the sukuk holder or investor a level of protection which may not be available from conventional debt securities. Furthermore, unlike conventional debt securities that mirror debts or loans on which interest is paid, sukuk can be structured based on innovative applications of Islamic principles and concepts. Nonetheless, sukuk share some similarities with conventional debt securities, in that they are similarly structured based on assets that generate revenue. Each sukuk has a face value (based on the value of the underlying asset), and the investor may pay that amount or (as with a conventional bond) buy it at a premium or discount. Modern day Sukuk have sorted out the original concept to create certificates representing undivided shares in the ownership of: • Tangible assets • Usufruct of an asset • Particular projects or special investment activities. Compared with the conventional bond...
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...1.Comparative Analysis To make a comprehensive and precise comparison, other than EA., we select Singapore Airlines Limited which is one of the most significant competitors in the world. All of our analysis is based on data which are drawn from Bloom Business and other authoritative websites, which contain 2 companies’ financial reports 2010-2012 including balance sheet and income statement. By comparing Emirates and Singapore Airlines we can make a brief conclusion of the EA’s financial situation. 1.1 Profitability Profitability is showed by the firm’s amount and level of income, and it can indicate the increase value of capital. 1.1.1 Net Profit Margin Net profit margin indicates how well the company converts sales into profits after all expenses are subtracted out. We can see from the chart that EA’s net profit margin was dramatically low in 2012,which is due to the increasing operating costs（mainly include the shooting up of Crude Oil price). However, it's profit margin is a little higher than the competitor because of its geographical advantage. 1.1.2 Return On Asset The higher the return on assets ratio, the more efficiently the company issuing its asset base to generate airline services. So EA’s efficiency of asset used is decreasing sharply in 2012. However, EA has higher efficiency than its competitor. 1.1.3 Return on shareholders funds ROSF allows investors to see how effectively the money they invested...
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...Sukuk: General Review Challenges on Shariah-compliance & Accounting Implications Monsif MOUMNI Introduction The growth and popularity of the use of Islamic finance has been exceptional since the central bank of Bahrain issued the first sovereign sukuk in 2001. In fact, the size of the global Islamic finance market exceeds US$2 trillion. Although the sukuk market is still small compared to the conventional bond market, sukuk are considered as the most successful financial product among the Islamic financial institutions and also considered as one of the fastest industries in its growth in international financial landscape. Sukuk generally refers to Shariah-compliant bonds; the spread in a striking pace of sukuk in GCC1 and Muslim-majority countries in Asia has made from it a very important way for fund raising. Recently sukuk have also been attracting attention in non-Islamic countries in Europe, Asia, and Africa; for example in 2014, sovereign sukuk were issued by the United Kingdom, Hong Kong, Luxembourg, and South Africa (Lackmann, 2015). The main objective of this paper is to provide a panoramic picture describing the key elements characterizing sukuk from different perspectives combined. In this review we will first try to present the general context of sukuk i.e. the definition, types, and the basic structure of sukuk, and also to make a contrast of conventional bonds with sukuk to outline the main differences, and next we will discuss about controversy...
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...January 2010 Global Sukuk Market Global Sukuk Update The sukuk market was not spared from the effect of the global financial crisis. After expanding robustly in 2007 (by 90% yoy by total value of sukuk issued), the sukuk market experienced a marked slowdown in 2008 and 1H09 due to the following reasons: • • • Challenging market conditions and drying up of liquidity Wide credit spreads and shortages of USD funding in issuing countries Challenging economic environment in the GCC countries, particularly in the UAE Nevertheless, as the overall market conditions improved, the primary sukuk market rebounded in 2H09. Third quarter issuance was up by 162.5% yoy and 61.9% qoq to USD8.8bln, followed by a strong issuance of USD8.1bln in 4Q09. These were in comparison to USD2.2bln in 1Q09 and USD5.5bln in 2Q09. Global Sukuk Issued 1H09 vs. 1H08 12000 10000 USD mln Global Sukuk Issued 2H09 vs. 2H08 Other 18000 16000 14000 12000 10000 8000 6000 4000 2000 0 MENA +292.1% yoy MENA Other USD mln 8000 6000 4000 2000 0 4633 10075 6469 6382 1152 1H08 1H09 2277 2041 2H08 6854 2H09 Source: Zawya, IFIS, Bloomberg, KFHR In 4Q09, global sukuk issued amounted to USD8.1bln, up by 752.1% yoy. On a quarterly basis, the amount of sukuk issued in 4Q09 was however lower than that recorded in 3Q09 by 8.6%, partly attributed to jitteries in the sukuk market resulting from Dubai World’s announcement on its debt restructuring. Global Sukuk Issuance Trend, Quarterly...
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...FINANCIAL RISKS OF SUKUK STRUCTURES Ali Arsalan Tariq M.Sc. International Banking Copyright AA Tariq, September 2004 A dissertation submitted in partial fulfilment of the requirements for the degree of Masters of Science at Loughborough University, UK. Acknowledgements First and foremost, I would like to thank my family – mother, father and my siblings – for their undying love. I would never have come so far without them. I would also like to take this opportunity to thank my supervisor, Dr. Humayon Dar, for his insightful guidance and for always being welcoming and patient with my unannounced visits throughout the year. This dissertation would never have been produced otherwise. Last but not least, I would like to thank my friends at Loughborough University that have made my summer of 2004 all the more memorable. For everything that is right, credit goes to all of the above. For anything that is wrong, I am culpable. Ali Arsalan Tariq September 2004 2 TABLE OF CONTENTS I. Introduction II. Islamic Financial Assets: Overview of Theoretical Aspects 2.1 Prohibitions 2.1.1. Prohibition of Riba (Interest) ` 2.1.2. Prohibitions of Gharar (Excessive Uncertainty) 2.1.3. Avoidance of Unethical Investments and Services 2.2 Alternative Basis of Financial Instruments 2.2.1 Partnership Contracts 2.2.2. Exchange Contracts 2.2.3. Financial Assets III. Evolution and Profile of Sukuk Structures and Markets 3.1 Types of Sukuk 3.1.1 Pure Ijarah Sukuk 3.1.2. Hybrid/Pooled Sukuk 3.1.3. Variable...
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...Islamic Finance Professional (CIFP) INCEIF September 2008 Critical assessment of four financial instruments in the Islamic financial markets Raja Shahridatul Dewa Binti Raja Musa Abstract There has been remarkable growth in the Islamic finance industry and seen double-digit growth in recent years. Increasing numbers of Islamic financial institutions are attempting to penetrate the international markets in meeting the global demands for Islamic finance. This calls for the development of innovative Islamic financial instruments which are shariah compliant that represent as alternatives to conventional instruments covering areas of Islamic banking, Islamic insurance, Islamic equities and Islamic bonds/sukuk. A parallel development of Islamic financial markets should also take place that look into the aspect of liquidity and cash flow management. At the same time legal and regulatory requirements are needed to ensure the smooth functioning of Islamic financial institutions. Given the uniqueness of the operations and transactions comprising contractual arrangements and instruments, it is critical for Islamic financial institutions to identify specific risks and to price the instruments based on the basic principle of risk and return. Critical assessment of four financial instruments in the Islamic financial markets 1. Introduction A financial system is defined as a set of rules and regulations...
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...1.0 Definition of Sukuk in general The word ‘sukuk’ is taken from the Arabic name to represent the financial certificate or an Islamic bond. It comes in Arabic form which is “sak” in singular and “sukuk” in plural. Sukuk is the Islamic bond or security that provides return to investor without breaking the Islamic law, which prevent in charging or paying interest. Sukuk in Islamic finance provides an opportunity to obtain the expected return with the lowest risk as the majority of investment opportunities is based on the stock market. Income is fixed when applying sukuk resulted in no interest is charged on the bonds. Bonds are securities based on debt while sukuk are securities based on asset. Sukuk is an important mechanism that will enhance the financial international capital markets through Islam. Sukuk are primarily composed of investment certificates of ownership claim in a pool of assets. In conclusion, sukuk refers to Islamic bonds that give an advantage to the investor to own a piece of property, along with a commensurate cash flow and risk. Sukuk is in compliance with Islamic law and also refers to the Islamic principles which do not charge interest. 2.0 Background of Sukuk in general Sukuk is an Islamic capital market instruments. Sukuk refers to Islamic securities with rather distinctive features in the modern day of Islamic finance. The first Sukuk transactions occurred in Damascus, Syria, located in the Grand Mosque of Damascus in the 7th century AD...
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...Retail Sukuk KNOWLEDGE PACK INVESTORS ARE ADVISED TO READ AND UNDERSTAND THE CONTENTS OF THIS KNOWLEDGE PACK. IF IN DOUBT, PLEASE CONSULT YOUR PROFESSIONAL ADVISER. 21 JULY 2014 Important Notice This document is prepared for investors’ information purposes only on the exchange traded Sukuk to be issued by DanaInfra Nasional Berhad (“DanaInfra Retail Sukuk”). The information within this document does not constitute an offer, recommendation or solicitation to buy or sell DanaInfra Retail Sukuk elaborated in this document. It does not claim to contain any advice or complete information on DanaInfra Retail Sukuk, nor is it a substitute for professional investment advice. As such, it is strongly recommended that you seek professional advice with regard to the investment and the risks associated with investing in DanaInfra Retail Sukuk. Please note that the information contained in this document is deemed to be accurate to the best of our knowledge as of the date of publication as stated on the front cover. DanaInfra Retail Sukuk is an investment product offered to the public in Malaysia. The public should not rely on the information contained in this document and are urged to do your research as deemed appropriate before making any investment decision. Factual statements in this document are made as of the date stated and are subject to change without notice. DanaInfra Retail Sukuk prices may go up as well as down. There are fees and charges involved and...
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...Islam is not the only driver for sukuk popularity By Eric Uhlfelder / Published: April 30 2007 Financial Times Before 9/11, in the year 2000, sukuk bonds were about as obscure as a debt-equivalent instrument could be. Complying with the tenets of shariah law, only three issues came to market, raising just $340m (€250m, £170m). Last year, a variety of banks – including ABN Amro, Barclays, Société Générale, Deutsche Bank and UBS – underwrote nearly 190 issues, raising more than $27bn. And Arul Kandasamy, head of Islamic Finance at Barclays Capital, projects the Gulf region will need $1,000bn in additional financing over the next decade, with a significant portion of capital demands projected to be met through sukuks. Sukuks differ from traditional fixed income in that technically, they do not pay interest – something that’s prohibited in Islam. Instead, investors are compensated through a cash stream typically generated from assets placed in special purpose vehicles. New-found demand for shariah-compliant products is especially evident in Saudi Arabia, where “the vast majority of retail investors have a clear preference for shariahcompliant assets,” says Ruggiero Lomonaco, head of Islamic Investment products at ABN Amro in London. “Currently, over half of all Saudi deposits are shariahcompliant, up from zero a decade ago.” In June of last year, even the US saw the issuance of its first sukuk in Texas by Houston-based oil and gas concern East Cameron Partners, which raised $166m...
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...Introduction Recent global financial crisis has highlighted the problems in the current financial system. Some of the analysts have even termed it as the downfall of the capitalism and interest based economy driven by ‘greed’ and has acknowledged the need of a new financial system. One interesting development in this whole scenario was the relative stability of Islamic Financial Institutions (IFIs). In the last decade, IFIs have witnessed an impressive growth and have begun to make an impact on the current financial setup. This paper aims to highlight the basic foundation of Islamic financial system and the development of different markets and institutions. It will then point out certain issues and challenges facing the Islamic Financial Institutions. HISTORY Early History: The history of Islamic Financial system goes back to 1,000 – 1,500 AD, during which the Middle Eastern tradesmen would engage in transactions based on Shariah. During that time, the Ottoman Empire Arabs had good trade relationships with the Spanish, and they established their financial systems without interest, based on profit and loss sharing basis. As time went by, Middle Eastern and Asian regions became important trading partners for European companies such as the Dutch East India Company, as a result of which European banks started to spread their branches in these countries, which typically were interest-based. Thus the conventional financial institutions became more dominant as Western countries started...
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...Islamic finance can be further developed in Luxembourg. In 2008, the Association of the Luxembourg Funds Industry (ALFI) launched a working group focusing on the development of Luxembourg as a center of excellence for Shariah compliant funds. In early 2009, the Luxembourg Deutsche Bank launched "Al Mi'yar", a Luxembourg domiciled platform which aims at smoothing the issuance of Shariah compliant securities. In 2009, the Central Bank of Luxembourg became a member of the Islamic Financial Services Board (IFSB) and, as such, is the first Central Bank of the European Union to become a member of that institution. In January 2010, the Luxembourg Tax Authority published a circular, the object of which is to clarify the tax treatment of Murabaha and Sukuk transactions and ensure that they benefit from the same tax treatment as conventional financing products. In April 2010, Luxembourg for Finance (LFF) issued a brochure describing in...
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...Financial Services Act (FSA). The introduction of FSA 2013 and IFSA 2013 will place Malaysia’s financial sector, encompassing the banking system, the insurance/takaful sector, the financial market and payment systems and other financial intermediaries, on a platform for advancing forward as sound financial system. The main objectives of both regulatory frameworks are to promote financial stability, strengthen compliancy to Shari’ah and strengthen regulatory framework for Islamic financial institution. Sukuk have been introduced as one of Islamic finance elements. Sukuk is asset securitization based on Syari’ah principle and often called Islamic Bonds. Sukuk grants the investor a share of an asset, along with the commensurate cash flows and risk. As such, Sukuk securities adhere to Islamic laws sometimes referred to as Shari’ah principles, which prohibit the charging or payment of interest. In terms of asset ownership, Sukuk give the investor partial ownership in the asset on which the sukuk are based. The asset...
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...Examples of products are Shariah-compliant Securities, Sukuk (Islamic Bond), Islamic unit trusts, Shariahindices, Warrants/Call warrants and Crude Palm Oil futures contract. Taking cognizance of the need of Muslim investors to trade and invest in the stock market, Islamic stockbroking services began to emerge in 1994 with the setting up of a full-fledged Islamic stockbroking company by the first Islamic bank in the country. In 1998 a second full-fledged Islamic stockbroking company was established. In addition to these two stockbroking companies, other conventional stockbrokers have indicated their interest in this specialised business. As of today, three Islamic windows are operating side-by-side with their conventional stockbroking services. In fulfilling the specific needs of private investors, there are also asset management companies that manage funds in accordance to Syariah principles. Although this activity is fairly new compared to Islamic unit trusts, the interest among high net worth Muslim investors to engage professional managers to invest their funds has been increasing gradually. This is evident with the existence of few asset managers that are managing individual funds in accordance to Syariah...
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...Appendix * Exchange overview……………………………page 4. * Regulator……………………………………...page 4-5. * Listing and Trading Rules….............................page 6-8. * Improvements………………………………...page 8-9. * Listings…………………….............................page 10-11. * Performance………………………………….page 12-13. * Sectorial Analysis……………………………page 13-14. * Valuation…………………………………….page 14. * Bonds………………………………………..page 14-16. * Sukuk………………………………………..page 16-17. * Mutual funds………………………………...page 17-19. * Initial Public Offerings……………………...page 19-20. * SWOT Analysis……………………………..page 20-21. * Future Prospects……………….....................page 21-22. * Conclusion………………………………….page 23. * References………………………………….page 24. I. Exchange Overview: In mid 1990s, stocks were traded through some unlicensed and unspecialized offices acting as intermediaries. This resulted in lack of transparency, and unfairness of stock pricing. The pressing need for a regulated and organized stock market that guarantee the protection of investors' interests by adopting modern mechanism for settling stocks' prices according to demand and supply led to the issue of the Emiri Decree No. 14 of 1995, founding the Doha Securities Market (DSM). Two years after the Emiri Decree Issuance, Doha Securities Market commenced its operations in May 26, 1997 with 17 companies and approximately 6 billion QR in market capitalization. Today, the Doha Securities Market (DSM) is known...
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