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Saturday, 22 December 2007

Malaysian global sukuk can match GCC requirements

KUALA LUMPUR: Malaysian global sukuk, which is based on the Ijarah principle, can meet varying expectations and compliance of Syariah boards in Gulf Cooperation Council (GCC) countries, International Institute of Islamic Finance Inc president Dr Mohd Daud Bakar said.
According to recent reports, Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) had announced that about 85% of Gulf Islamic bonds did not fully comply with Islamic laws.
Most bonds were sold with a repurchase undertaking where the borrower will pay their face value at maturity, or when it is defaulted, mirroring the conventional bonds structure.
However, Mohd Daud said the bonds highlighted referred to equity-based Sukuk Mudarabah and Sukuk Musharakah, an equity sharing principle where a partnership was established to provide financing with its participants where profits would be borne by all musyarakah investors.
“Malaysia’s global sukuk is not affected by the pronouncement because its structure is different,” he said. Malaysian global sukuk, or Sukuk al-Ijarah is based on a “sale and lease back”concept where the issuer sells its asset to investors for a financing amount.
“I am confident that our global sukuks can meet requirements of the Syariah boards in the Middle East as we can customise (the sukuk) to suit the regulatory body there.
“However sukuk issuers in Malaysia have to take serious note of investors’ sentiments and continue to comply and keep up with Syariah requirements globally,” Mohd Daud told The Edge Financial Daily.
He was speaking on Islamic fixed income instruments at a forum titled “Exploring the Global Potential of Islamic Fixed Income Securities: Syariah Requirements & Market Practice”, which was organised by Malaysian Rating Corporation Bhd here on Wednesday.
On the progress of the convergence of Syariah principles in Malaysia and GCC countries, Mohd Daud said: “Convergence is not easy because even within the Gulf countries itself, certain sukuk was not accepted.”
He said sukuk issued here was moving towards a hybrid of securitisation, or taskeek, to issue bonds based on assets and receivables combined.
“Following recent AAOIFI standards, we can now combine receivables up to 70% and 30% assets to issue sukuk. This would allow investors to trade in the market without facing a debt trading problem,” Mohd Daud added.
On whether this form of sukuk would be accepted in the Middle Eastern markets, he said: “Some (Syariah) scholars might debate on this, but generally this would be accepted.” --(TED, 21 Dec 2007)

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