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Sukuk Securities

Sukuk Securities New Ways of Debt Contracting

  • Author:
  • Publisher: John Wiley & Sons
  • ISBN: 9781118937877
  • Published In: November 2014
  • Format: Hardback , 192 pages
  • Jurisdiction: International ? Disclaimer:
    Countri(es) stated herein are used as reference only

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    The essential guide to global sukuk markets worldwide

    Sukuk Securities provides complete information and guidance on the latest developments in the burgeoning sukuk securities markets. Written by leading Islamic finance experts, this essential guide offers insight into the concepts, design features, contract structures, yields, and payoffs in all twelve global sukuk markets, providing Islamic finance professionals with an invaluable addition to their library. The first book to fully introduce the market, this book provides a detailed overview of the sukuk market, with practical guidance toward applying these instruments in real-world scenarios. Readers will learn how sukuk securities are regulated and the issues that arise from regulations, and gain insight into the foundation and principles of Islamic finance as applied to these instruments. Extensive tables illustrate t-test comparisons between conventional bonds and sukuk, risk factors, and the issuance of different types of sukuk securities by country to give readers a deeper understanding of the markets.

    In 2010, the World Bank recommended sukuk as the best form of lending for growth in developing countries; since then, the value of new issues has grown at 45 percent per year. The market's present size is close to US $1,200 billion, with private markets in major financial centers like London, Zurich, and New York. This book provides comprehensive guidance toward understanding and using these instruments, and working within these markets.

    • Get acquainted with the sukuk market, definitions, classification, and pricing
    • Learn the different approaches to structuring and contract design
    • Discover how sukuk is applied, including regulations, ratings, and securitization
    • Examine payoff structures and suggested sukuk valuation in the context of Islamic finance principles

    With the sukuk market growing the way it is, regulators, investors, and students need to fully understand the mechanisms at work. Sukuk Securities is the complete guide to the sukuk markets, with expert insight. July 2014 saw the first sukuk listing in London. Hong Kong and Seoul have also entered this niche market. Predictions are that there will be continued high growth of sukuk debt markets around the world, all providing targeted funding via sukuk contracting modes.

  • Preface xi

    Acknowledgments xiii

    List of Tables xv

    List of Figures xvii

    About the Authors xix

    PART ONE The Foundation of Sukuk Securities 1

    CHAPTER 1 Introduction to Sukuk Markets 3

    Islamic (Participation) Debt Securities 4

    The Origin of Sukuk Structures 6

    Contemporary Sukuk Securities 9

    How Sukuk Securities Are Priced 10

    The Structure of This Book 12

    CHAPTER 2 Sukuk Securities: Definitions, Classification, and Pricing Issues 13

    Fundamental Principles 14

    Defi nitions and Regulations 20

    Classifi cation Based on Practices 22

    Conclusion 29

    CHAPTER 3 Pragmatic and Idealistic Approaches to Structuring Sukuk 31

    Shariah : The Basic Foundations of Islamic Finance and Sukuk 32

    Islamic Financial Principles 35

    Three Approaches to Islamic Finance 40

    The History of Sukuk 41

    Sukuk Structures: Pragmatic and Idealistic Approaches 44

    Conclusion 55

    CHAPTER 4 Contract Design and the Structure of Common Sukuk Securities Issued to Date 57

    Mudarabah (Partnership) 57

    Musharakah (Profit Sharing) 59

    Murabahah (Markup) 62

    Ijarah (Leasing) 64

    Salam (Futures) 67

    Istisna (Working Capital) 69

    Conclusion 70

    CHAPTER 5 Samples of Sukuk Issued 71

    Sukuk Simpanan Rakyat (Malaysia) 71

    Central Bank of Bahrain 73

    Khazanah Nasional Berhad (Malaysia) 74

    Qatar Central Bank 74

    Nakheel Sukuk (UAE) 75

    Mahan Airline Company (Iran) 75

    Conclusion 76

    CHAPTER 6 Contract Design and the Structure of Sukuk Securities Yet Issued 77

    Wakalah (Agency) 77

    Manfaah (Usufruct) 78

    Muzarah (Farmland Leasing) 78

    Musaqah (Orchard Leasing) 79

    Muqarasah (Tree Leasing) 79

    Conclusion 79

    CHAPTER 7 Sukuk Securities and Conventional Bonds 81

    Comparison of the Yields of Islamic Securities and Bonds 82

    Yield Curves 86

    The Granger Causality Test for the Yields of Sukuk and Conventional Bonds 90

    Conclusion 94

    PART TWO Sukuk Securities in Practice 97

    CHAPTER 8 Regulations with a Difference 99

    Regulating Sukuk 99

    Conclusion 105

    CHAPTER 9 Securitization, Trading, and Rating 107

    Sukuk Trading 107

    Sukuk Rating Methodologies 113

    Conclusion 123

    CHAPTER 10 Worldwide Sukuk Markets 125

    The Geographical Location of Sukuk Securities 128

    The Effect of Geographical Location on Contract Specifications 137

    Conclusion 139

    CHAPTER 11 Regulatory Issues for Sukuk Financial Products 141

    The Current Sukuk Market 142

    Regulation and Shariah Issues in the Current Sukuk Market 143

    Current Sukuk Structures 145

    Possible Developments and Implications 151

    PART THREE Payoff Structures and Sukuk Valuation 161

    CHAPTER 12 The Foundation and Principles of Islamic Finance 163

    Foundation 163

    Principles 164

    Conclusion 167

    CHAPTER 13 Cash-Flow Identification and Pattern Recognition for Theoretical Valuation Models 169

    Zero-Promised Regular-Payment Sukuk 169

    Fixed-Promised Regular-Payment Sukuk 171

    Variable-Promised Payment Sukuk 172

    Undetermined-Promised Payment Sukuk 174

    Conclusion 175

    CHAPTER 14 A Matter of Choice: Sukuk or Bond? 177

    The Economics of Conventional Bond-Based Funding 178

    World Markets for Conventional Loans 181

    The Case against Interest-Based Debt with No Risk Shared 182

    Are Sukuk an Alternative to Bonds? 185

    Conclusion 187

    CHAPTER 15 Challenges and Future Developments 189

    Valuation 189

    Liquidity 190

    Market Widening and Market Depth 191

    Cost of Issuance 191

    Variation in Schools of Thought 192

    Educating More Experts in Sukuk 193

    Regulatory Sufficiency 194

    Conclusion 195

    Bibliography 197

    Index 209

  • MOHAMED ARIFF, PHD, a professor of finance at Bond University, Australia (and the University Putra Malaysia), is widely considered a specialist on Asian Pacific finance and Islamic finance. Formerly, he served as the elected president of the Asian Finance Association. He is a co-author of Investments and has authored or coauthored 33 other books. His scholarly articles have appeared in leading economics and finance journals.

    MEYSAM SAFARI, PHD, is a senior lecturer at SEGI University, a private institution in Malaysia. He won a prestigious scholarship from Khazanah Holdings. His scholarly research and teaching is in finance, although he has an engineering background.

    SHAMSHER MOHAMAD, PHD, is a professor at INCEIF University. After distinguishing himself in professional duties, he served as the dean of the faculty of economics. His teaching includes post-graduate finance subjects and supervising 25 doctoral students to completion.

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