Islamic Bond Issuance IMF Policy Discussion Paper by Andreas
From HodHood
Contents
Top 20 FREQUENT WORDS
sukuk 162 islamic 121 issuance 61 shari 58 finance 57 malaysia 35 asset 32 financial 32 sovereign 32 securities 28 conventional 27 government 26 issues 25 assets 23 debt 23 billion 21 investment 21 issuers 21 international 19 markets 19
DOCUMENT KEY POINTS
- this paper reviews the current state of the sukuk market examines pertinent legal and economic implications of shari ah compliance on the configuration of sukuk issuance and informs the debate about the prospects of sukuk issuance by sovereign issuers in both muslim and nonmuslim countries going forward
- although the current level of sukuk issuance remains a fraction of the global issuance of conventional bonds and abs the market for sukuk has been growing rapidly despite the global financial crisis triggered by the collapse of the u
- issuers of sukuk substitute capital market investors for traditional lenders as source of funding by converting the expected proceeds from bilateral risk sharing between borrowers and lenders in shari ah compliant finance contractsa such as lending transactions installment sale or trust based investments in existing or future assetsa into marketable securities
- although the us dollar has been the currency of choice since the beginning of the global sukuk market in there has been a marked shift towards non dollar issuance with the share of us dollar denominated sukuk dropping from percent in to slightly more than percent in
- the issuance of ijara sukuk which fund the gainful long term transfer of an asset or service for a specified rent and term frequently conditional on the future purchase of the assets for an agreed lawful consideration amounted to about us billion although the latter accounted for deals compared to musharaka structures
- while asia specifically malaysia accounted for the bulk of all issues in close to percent issuance activity in the gcc has picked up rapidly and now accounts for more than percent of all issues by number
- thus although sukuk are linked to an underlying asset investor appetite is probably driven primarily by the sovereign nature of the risk as the underlying asset risk is seen as incidental to the overall exposure
- although sukuk have been rarely issued outside asia and the gcc they are beginning to gain popularity in countries with conventional financial syste miss following the precedent of the german state of saxony anhalt which launched the first sovereign sukuk in a non islamic jurisdiction the u
- the development of a liquid secondary sukuk market however will depend on that of sukuk as interbank money market instruments and shari ah compliant short term liquidity facilities
- the typical buy and hold investment strategies and limited diversity of sukuk investors produce illiquid secondary markets and inhibit efficient price discovery and it is important to recognize that shari ah compliance is continuous process that ends at the legal maturity date of the transaction
- one such transaction was completed in july by cagamas berhad the national mortgage corporation of malaysia when it issued the first islamic mortgage based securities as mudarabah bonds with varying returns and maturities ranging from three to years having issued the first malaysian conventional mortgage backed security mbs in october
- nonetheless various islamic organizations notably the international islamic the requirement of a direct linkage between identifiable assets and investors under islamic law belies the commercial principle of perfected security interest in asset backed transactions ie establishing a legal separation of assets from the bankruptcy estate of the asset originator
- tax disincentives to issue sukuk in lieu of conventional debt since islamic finance transactionsa due to their asset backed structurea often incur double taxation of dividends in equity based contracts without tax deductions on interest expenses ie tax shield as is the case with conventional debt funding jobst
- greater standardization would enhance the valuation and efficient pricing of sukuk and improve secondary market liquidity within regulatory frameworks that are cast in a way to be flexible enough to adapt to the characteristics of new islamic capital market securities while preserving universal standards of market supervision and financial surveillance
- the most prominent structures are sukuk al salam sukuk al ijara sukuk almusharaka sukuk al mudaraba sukuk al intifa a sukuk al istisna and sukuk al musharaka
- although the malaysian market has been the beneficiary of most innovation in sukuk the degree of religious approval of sukuk by shari ah boards varies throughout the rest of the islamic world
- also quasi sovereign entities international financial institutions ifis such as the islamic development bank the world bank and its private sector arm the international finance corporation publicly listed corporates privately owned companies and religious councils such as the singapore islamic religious council muis have issued sukuk
- islamic central bank and government securities in sudan both the central bank of sudan cbs and the government of sudan gos have raised funds though the domestic issuance of shari ah compliant securities via the sudan financial services company sfsc which was created in
- while it would not be appropriate for financial market supervisors in non muslim countries to judge between different interpretations of shari ah consistent application of regulatory standards would warrant the assessment of the role of non regulated shari ah boards and how they affect the financial and operational viability of an authorized financial institution or spv
- for instance in malaysia government investment issues gii and malaysia islamic treasury bills mitb were issued to allow islamic banks to hold liquid paper that meet their statutory liquidity requirements because they are unable to purchase or trade in interest bearing malaysian government securities mgs and malaysian treasury bills mtb
- what are the operational implications of using sukuk for monetary management and how does it affect the relation between the sukuk market and liquidity in the money and conventional debt markets in addition recent regulatory changes concerning the structure of sukuk warrant careful consideration
- the lessons from recent non islamic issuesa both sovereign and corporatea as well as that the experience of countries with a dual financial system conventional and islamic a such as malaysia and sudana can help new issuers innovate and adapt their infrastructure and regulation to ensure shari ah compliance see box
- sukuk cannot represent either revenue streams or debt with the exception of either i a trading or financial entity that sells all its assets or ii a portfolio that includes a standing financial obligation which is deemed incidental to a physical asset underlying the transaction however the emerging controversy about the shari ah compliance of outstanding sukuk quickly dissipated once aaoifi proposed to grandfather all outstanding issues
- in addition to the issuance of a fatwa religious approval on the structure of sukuk a shari ah supervisory board is also required to review all contracts and documentation related to the actual transaction which involves verifying that the manner of implementation accords with shari ah principles
- sub prime markets crisis and the legal uncertainty surrounding the recent aaoifi ruling on sukuk especially sovereign sukuk are likely to gain popularity as more governments in both muslim and non muslim countries explore options to diversify their traditional debt portfolios
- sundararajan vasudevan marston david and shabsigh ghiath monetary operations and government debt management under islamic banking imf working paper no
- moody s focus on the middle east inside moody s spring p
Please note, This is an auto generated summary based on sentances position in the document and other factors
DOCUMENT WORD ANALYSIS
Main Category
- AlHuda Material\sukuk islamic
KeyWords
sukuk issu secur debt malaysia investor issuanc islam bond issuer corporate billion governance malaysian rate structur bankable institut developed convention
RELATED DOCUMENTS
- Collaborative Sukuk Report by Zawya
- Corporate Sukuk Issuance by Muhammad Arif
- Global Sukuk Market, Advantages and Future
- Islamic Bond Issuance IMF Policy Discussion Paper by Andreas
- Malaysian Debt Security and Sukuk Market
- Over View of World Sukuk
- Regulatory Frame Work & Development of Sukuk
- Review on Several Sukuk Products by Ijlal Alvi
- Sukuk by Ahmad Ibrahim
- Sukuk By Ijlal Alvi
- Sukuks Deveolpment and Challenges by Ijlal Alvi
DOCUMENT REFERENCES
Number of Pages
22
Published Date
2008-07-22 15:58:18
