Sukuk mudarabah and sukuk musharakah in the light of accounting and auditing organization for Islamic institutions (AAIOFI) pronouncement 2008: challenges and opportunities

This article attempts to highlight some recent developments and issues in the sukuk market, especially in the light of the AAOIFI Shari`ah pronouncement of February 2008. In general, the market tends to understand and expect sukuk to be within the “fixed income” types of investment with minimal or controlled risks and capital preservation features. In short, they expect sukuk to behave like conventional bonds in terms of capital preservation, periodic distribution frequency and rate of return. When sukuk use debt-based structures and lease-based structures, it is not that difficult to meet this fixed income characterisation. However, when sukuk start to use equity contracts like mudarabah and musharakah, such fixed income characteristic created some anomalous situations and conflicts. There are apparently inherent contradictions in the nature of mudarabah and musharakah as equity contracts, and capital preservation and fixed income nature of debt market environment in which sukuk are expected to operate. Thus, additional “credit enhancements” and strategieswere introduced to the mudarabah and musharakah sukuk structures to achieve capital protection and predictable periodic returns similar with other fixed income or bonds instruments. These credit enhancements to equity-based sukuk had been the subject of strong criticisms by various parties in terms of their compliance with the Shari`ah requirements of mudarabah and musharakah contracts. This had led to the practices being reviewed by the Shari`ah Board of AAOIFI. They finally came up with the February 2008 AAOIFI pronouncement that highlighted in unequivocal terms that sukuk are inherently different from conventional bonds and fixed income instruments, and thus, should behave differently. It was also understood from the pronouncement that when the sukuk structure is equity-based, certain basic rules of equity cannot be compromised for the sake of meeting the commercial demand of the market, which actually is conditioned by the prevalent interest-based economy and philosophy. The AAOIFI pronouncement gave rise to a re-examination of market perception of sukuk. Sukuk should not and could no longer be perceived as strictly fixed income instruments with capital preservation features. If the pronouncement is stringently adhered to, the equity-based sukuk should behave like equity instruments and not to be tweaked to fit into the “fixed income box

Maqasid Syariah dan produk kewangan patuh Syariah dalam sektor pengurusan dana Islam

Berdasarkan kefahaman terhadap maqasid Syariah dan konsep maslahah, banyak tulisan, kajian dan pandangan telah diutarakan mengenai persoalan samada produk kewangan patuh Syariah dan industri kewangan Islam hari ini dapat memenuhi tuntutan maqasid Syariah atau pun tidak. Sebahagiannya berpandangan bahawa, sedikit sebanyak, produk patuh Syariah dan industri kewangan Islam mampu memenuhi beberapa tuntutan maqasid Syariah. Sebaliknya, sebahagian yang lain pula berpandangan bahawa produk patuh Syariah dan industri kewangan Islam hari ini gagal memenuhi maqasid Syariah dalam banyak keadaan. Kertaskerja ini akan cuba mengupas persoalan ini secara lebih khusus iaitu: samada produk patuh Syariah dalam sektor pengurusan dana Islam hari ini menepati maqasid Syariah ataupun tida

صكوك المضاربة والمشاركة في ضوء البيان الصادر عن هيئة المحاسبة والمراجعة للمؤسسات المالية الإسلامية لعام 2008 : التحديات والفرض Sukuk al-Mudharibah w al-Musharikah fi Dhu'i al-Bayani al-Shadiri an Hyna al-Makhasibah wa al-Maraji'ah lil Mu'sasati al-Maliah al-Islamiyah lil Am 2008: al-Takhdidiyyah wa al-Farsd

This article attempts to highlight some recent developments and issues in the sukuk market, especially in the light of the AAOIFI Shari`ah pronouncement of February 2008. In general, the market tends to understand and expect sukuk to be within the “fixed income” types of investment with minimal or controlled risks and capital preservation features. In short, they expect sukuk to behave like conventional bonds in terms of capital preservation, periodic distribution frequency and rate of return. When sukuk use debt-based structures and lease-based structures, it is not that difficult to meet this fixed income characterisation. However, when sukuk start to use equity contracts like mudarabah and musharakah, such fixed income characteristic created some anomalous situations and conflicts. There are apparently inherent contradictions in the nature of mudarabah and musharakah as equity contracts, and capital preservation and fixed income nature of debt market environment in which sukuk are expected to operate. Thus, additional “credit enhancements” and strategies were introduced to the mudarabah and musharakah sukuk structures to achieve capital protection and predictable periodic returns similar with other fixed income or bonds instruments. These credit enhancements to equity-based sukuk had been the subject of strong criticisms by various parties in terms of their compliance with the Shari`ah requirements of mudarabah and musharakah contracts. This had led to the practices being reviewed by the Shari`ah Board of AAOIFI. They finally came up with the February 2008 AAOIFI pronouncement that highlighted in unequivocal terms that sukuk are inherently different from conventional bonds and fixed income instruments, and thus, should behave differently. It was also understood from the pronouncement that when the sukuk structure is equity-based, certain basic rules of equity cannot be compromised for the sake of meeting the commercial demand of the market, which actually is conditioned by the prevalent interest-based economy and philosophy. The AAOIFI pronouncement gave rise to a re-examination of market perception of sukuk. Sukuk should not and could no longer be perceived as strictly fixed income instruments with capital preservation features. If the pronouncement is stringently adhered to, the equity-based sukuk should behave like equity instruments and not to be tweaked to fit into the “fixed income bo

المواءمة الشرعية والرقابة والتنظيم للصناعة المالية الإسلامية: تجربة البنك المركزي المالزي = Shari`ah harmonisation and regulatory consolidation: BNM experience

It is important that the legal and regulatory framework of the country that has Islamic banking and finance operations recognizes and addresses the differences between Islamic finance and its conventional counterpart properly so as to prevent inappropriate regulation and regulatory arbitrage. In the past or perhaps even in the present time, this aspect of concern has not been addressed adequately. This paper attempts to highlight the main issues and conflicts that occur between the legal framework and the Shariah requirements of Islamic banking transactions; and the Malaysian experience, in particular, that of the Central Bank of Malaysia (BNM), in trying to harmonize the legal framework with the Shariah, to facilitate better implementation & Shariah compliance of Islamic banking & finance in the country

A legal analysis of successful and problematic Build Operate and Transfer (BOT) projects in Malaysia

The Malaysian government has adopted the Build Operate Transfer (BOT) project contractual arrangement for developing public infrastructure projects like highways and railways. In an effort to balance the economic and social needs of the community, the government has introduced a policy and legal framework to address the issue. The aim of this article is to study factors contributing to both successful and problematic BOT projects in Malaysia. The analysis reveals that there are common underlying factors contributing to the success of BOT projects such as: sound policy and regulatory framework, strong government support, clarity of project formulation and documentation, responsible sponsors and fair deals for all parties. On the other hand, the factors contributing to the problematic projects are individualised. Finally, steps to overcome the problems are elucidated to improve the efficiency and effectiveness of both BOT legal technique and privatisation in general