By Habhajan Singh
Sukuk Ijarah, the underlying principle of Malaysia's first global sukuk in 2002, has been accepted as compliant by most Shariah boards, says an international Shariah scholar.
Sukuk ijarah has been accepted as compliant by many Shariah boards and scholars as well as the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) Shariah standards, with the exception of certain jurisdictions and scholars objecting to the put option at face value, says Dr Mohd Daud Bakar. Sukuk ijarah, an Islamic bond, is based on sale and lease back and carries a put option.
"Malaysia was the first sovereign to issue global sukuk in 2002 which paved the way for other sovereign issue similar sukuk such as the Bahrain, Qatar and Pakistan as well as Saxony-Anhalt of Germany," he said.
The topic of sukuk was at the heart of discussion for some 200 bankers from both Islamic financial institutions and conventional banks who attended the one-day Sukuk Seminar 2008 organised by Amanie Business Solutions in Kuala Lumpur yesterday.
Dr Mohd Daud, Amanie president/CEO of Amanie and also chairman of Securities Commission's (SC) Shariah Advisory Council, said the recent AAOIFI sukuk pronouncement have caused much apprehension and anxiety that the growth of sukuk issuance may suffer a backlash.
In February 2008, AAOIFI Shariah council chairman Sheikh Taqi caused a stir when he said that a whooping 85% of Gulf sukuks did not fully comply with Islamic laws. This brought sukuk, or Islamic bonds that notched global sales of up to US$30.8 billion (RM99.5 billion) last year, almost doubling sales the year before, under intense scrutiny of Shariah scholars and practitioneers.
Rafe Haneef, managing director of newly established Islamic investment company Fajr Capital, spoke on the implications of the AAOIFI pronouncement. He said sukuk must be backed by real assets, either physical, usufruct or services.
"If there are no real assets, say only a business plan, the sukuk cannot be traded until the business has acquired or invested into real assets," he said at the seminar.
Rafe, formerly Head of Islamic Banking for Citigroup Asia, added that the industry is advised to reduce the exposure on "debt-oriented" sukuk and shift towards a "profit-and-loss sharing" sukuk.
In mid-March, Standard & Poor's (S&P), in a report entitled 'The sukuk market continues to soar and diversify, held aloft by huge financing needs', said that the sukuk market growth will not be stunted by the recent debate among Shariah scholars about the Shariah compliance of the amount of sukuk issued so far.
Noting that the sukuk market more than doubled in 2007 to exceed US$60 billion, the rating believes the current debate is likely to introduce more standardisation and encourage innovation in this field.
Particularly the emergence of sukuk that are solely backed by assets and do not benefit from "credit enhancements" or thirdparty guarantees and associated features that add to a sukuk's creditworthiness.
(The Malaysian Reserve, July 15, 2008, p9, MONEY)
