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Sukuk

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1. Meaning

Translation of Sukuk: In Arabic “Saak” means a document in the form of a certificate, a bill or a bond. The plural of “Saak” is “Sukuk” and is a term used to qualify Islamic bonds. Sukuk are certificates evidencing undivided pro rata ownership of an underlying asset.

2. Official definitions of Sukuk:

  • The Accounting and Auditing Organization for Islamic Financial Institutions (known as AAOIFI) defines Sukuk as “certificates of equal value representing undivided shares in ownership of tangible assets, usufruct and services or (in the shares in ownership of tangible assets, usufruct and services or (in the ownership of) the assets of particular projects or special investment ownership of) the assets of particular projects or special investment activity, however, this is true after receipt of the value of the Sukuk, the activity, however, this is true after receipt of the value of the Sukuk, the closing of subscription and the employment of funds received for the closing of subscription and the employment of funds received for the purpose for which the Sukuk were issued” (AAOIFI, p.468).
  •  The Islamic Financial Services Board (known as IFSB) defines Sukuk as a certificates that represent the holder proportionate ownership in an undivided part of an underlying asset where the holder assumes all rights and obligations to such asset  (IFSB, p.56).

3. Differences between Sukuk and Conventional Bonds :

  • Sukuk (Islamic Bonds): Trust certificates representing ownership of the sukuk holder in the underlying asset (or its usufruct). Unlike with conventional bonds, the return earned is not the interest but the profit generated by the asset. Sukuk are backed by physical Sharia-compliant assets and both parties are partners.
  • Conventional Bonds: Contractual pure debt certificates where the issuer pays back specific interests and a principal on certain dates. Bonds are based on financial assets and both parties have a debtor/creditor relationship.

4. Types of Sukuk: AAOIFI classified 14 different types of Sukuk (Certificates) structures. Some of them are:

  • Sukuk Al Wakala: based on investment agencies.
  • Sukuk Al Ijara: based on asset leasing. Sukuk Ijara contains different other subtypes of Sukuk structures such as: Sukuk Ijara Mawsufa fi Dhimma (based on forward lease), Sukuk Manfaa Ijara (based on usufruct of a lease), Sukuk Manfaa Ijara Mawsufa fi Dhimma (based on usufruct of a forward lease). Malaysia International Islamic Finance Center (MIFC) (2013) “Sukuk Using Al-Ijarah Structure” [English]
  • Sukuk Al Musharaka:  based on partnerships. Malaysia International Islamic Finance Center (MIFC) (2013) “Sukuk Using Musyarakah Structure – 2” [English]
  • Sukuk Al Mudaraba: based on trust investments and equity partnerships.
  • Sukuk Al Murabaha: based on a cost-plus or deferred payment Sukuk.
  • Sukuk Al Salam is based on forward contracts, they are deferred delivery purchase sukuk.
  • Sukuk Al Istisna : based on manufacturing.  Malaysia International Islamic Finance Center (MIFC) (2013) “Sukuk Using Al-Istisna’ Structure” [English]
  • Sukuk Al Muzaraa : based on sharecropping.
  • Sukuk Al Musaqa : based on Irrigation.
  • Sukuk Al Mugharasa : based on Agriculture.
  • Sukuk Milkiyat Al Khadamat : based on service ownership.

5. Different types of Sukuk:

Sukuk are usually classified into four different types:

  • Tradable Sukuk,
  • Non-tradable Sukuk,
  • Equity-based Sukuk, and
  • Debt-based Sukuk.

6. Asset Backed vs Asset Based Sukuk:

  •  Asset Backed Sukuk are secured Sukuk because the SPV has ownership of the underlying asset.
  • Asset Based Sukuk are unsecured Sukuk because the SPV has only property-rights on the underlying asset.

7. Sukuk Standards:

  • AAOIFI FAS 34 “Financial Reporting for Sukuk-holders” [English] [Arabic]
  • AAOIFI FAS 33 “Investment in Sukuk Shares and Similar Instruments” [English]
  • AAOIFI GSIFI 12 Draft “Sukuk Governance” [English]
  • IFSB-19 (April 2017) “Guiding Principles on Disclosure Requirements for Islamic Capital Market Products (Sukuk and Islamic Collective Investment Schemes)” [English] [Arabic] [French] [Russian]
  • IFSB-7 (January 2009) “Capital Adequacy Requirements for Sukuk, Securitisations and Real Estate Investment” [English][Arabic]
  • IILM: The Features of the IILM Sukuk [English] IILM Sukuk Factsheet [English].
  • IIRA: Sukuk Rating Process [English]

8. Sukuk Templates

  • IIFM Sukuk Ijarah Document Templates
  • IIFM Sukuk Ijarah Document Templates

9. Sukuk reports:

  • IIFM Sukuk report- 10th edition (July 2021) “A Comprehensive Study of the Global Sukuk Market” [English].
  • IIFM Sukuk report- 9th edition (July 2020) “A Comprehensive Study of the Global Sukuk Market” [English].
  • IIFM Sukuk report- 8th edition (July 2019) “A Comprehensive Study of the Global Sukuk Market” [English].
  • IIFM Sukuk report- 7th edition (April 2018) “A Comprehensive Study of the Global Sukuk Market” [English].
  • IIFM Sukuk report- 6th edition (July 2017) “A Comprehensive Study of the Global Sukuk Market” [English].
  • IIFM Sukuk report- 5th edition (March 2016) “A Comprehensive Study of the Global Sukuk Market” [English].
  • IIFM Sukuk report- 4th edition (November 2014) “A Comprehensive Study of the Global Sukuk Market” [English].
  • IIFM Sukuk report- 3th edition (2013) “A Comprehensive Study of the Global Sukuk Market” [English].
  • IIFM Sukuk report- 2th edition (2012) “A Comprehensive Study of the Global Sukuk Market” [English].
  • IIFM Sukuk report- 1st edition  (2011) “A Comprehensive Study of the Global Sukuk Market” [English].
  • World Bank Group  (2019) “Helping Malaysia Develop the Green Sukuk Market : Facilitating Sustainable Financing – Case Study” [English].
  • World Bank Group (2018) “Green Sukuk, Energy Poverty, and Climate Change : A Roadmap for Sub-Saharan Africa” [English].
  • World Bank Group(2017) “Establishing a legal framework for sovereign Sukuk issuance : a public debt management perspective” [English].
  • World Bank Group (2014) “Sukuk markets : A proposed approach for development” [English].
  • GBSA (2014) “Green Sukuk: the Race to be First” [English].

10. Sukuk Course

  • Carrera Learning: Sukuk Market [English]

Country: Jordan

  • Jordan Securities Commission (2014) “Social Purpose Company Regulation” [English]
  • Jordan Securities Commission(2014) “Islamic Finance Sukuk Contract Regulation” [English]
  • Jordan Securities Commission(2014) “Instructions on Listing Islamic Finance Sukuk” [English]
  • Jordan Securities Commission(2013) “Instructions for the Issuance and Registration of Islamic Finance Sukuk, and their Supplement” [English]
  • Jordan Securities Commission(2013) “Owners of Islamic Finance Sukuk Committee Instructions” [English]
  • Jordan Securities Commission(2013) “Registrations Deposit and settlement of Sukuk Instructions” [English]
  • Jordan Securities Commission(2013) “Sukuk Trading Instructions” [English]
  • Jordan Securities Commission (2012) “Basis and Conditions for the Accreditation of a Sharia” [English]
  • Jordan Securities Commission (2012) “Islamic Finance Sukuk law no 30” [English]

Country: Malaysia

  • Malaysia International Islamic Finance Center (MIFC) (2021)Malaysia first digital Sukuk  [English]
  • Malaysia International Islamic Finance Center (MIFC) (2020) “Shariah Requirements in Sukuk Structuring” [English]
  • Securities Commission Malaysia (2020) Updates to the Circular on Further Flexibilities to Capital Markets Services License Holders and Registered Persons dated 16 April 2020 (relating to corporate bonds and sukuk) [English]
  • Securities Commission Malaysia (2019) “Sustainable and Responsible Investment Sukuk Framework – An Overview” [English]
  • Securities Commission Malaysia (2015 – Revised in 2019) “Guidelines on Issuance of Corporate Bonds and Sukuk to Retail Investors”  [English]
  • Securities Commission Malaysia (2011 – Revised in 2019) “Guidelines on registration of Credit Rating Agencies ” includes approach to rating sukuk [English]
  • Securities Commission Malaysia (August 2014) “Technical Note on the Application of SC’s Guidelines in Relation to Non-tradable and Non-transferable PDS and Sukuk” [English]
  • Securities Commission Malaysia (2013) “The Application of SC’s Guidelines in Relation to Non-tradable and Non-transferable PDS and Sukuk” [English].
  • Malaysia International Islamic Finance Center (MIFC) (2013) “GII on Murabahah concept” [English]
  • Malaysia International Islamic Finance Center (MIFC) (2013) “Sukuk Using Al-Istisna’ Structure” [English]
  • Malaysia International Islamic Finance Center (MIFC) (2013) “Exchangeable Sukuk Structure – Exchangeable Mechanism” [English]
  • Malaysia International Islamic Finance Center (MIFC) (2013) “Exchangeable Sukuk Structure” [English]
  • Malaysia International Islamic Finance Center (MIFC) (2013) “Sukuk Using Musyarakah Structure – 2” [English]
  • Malaysia International Islamic Finance Center (MIFC) (2013) “Sukuk Using Musyarakah Structure – 1” [English]
  • Malaysia International Islamic Finance Center (MIFC) (2013) “Sukuk Using Al-Ijarah Structure” [English]
  • Securities Commission Malaysia (2011) “Trust Deeds Guidelines” includes guidelines related to Sukuk [English]
  • Securities Commission Malaysia (2007) “Joint Information Note on the Issuance of Foreign Currency-Denominated Bonds and Sukuk
    in Malaysia” [English] 
  • Securities Commission Malaysia (2004) “Guidelines on the Offering of Asset-Backed Securities [English]

Country: Morocco

  • Autorite Marocaine Du marche des Capitaux (2008) Law relating to the securitization of Assets including Sukuk regulation [French]
  • Autorite Marocaine Du marche des Capitaux (2018) Characteristics of Sukuk Al Ijara [Arabic]

Country: Nigeria

  • Nigeria Stock Exchange (2016) “Rules Governing the Listing of Sukuk and Similar Debt Securities” [English]
  • Central Bank of Nigeria (2016) “Guidelines for Granting Liquid Asset Status to Sukuk Instruments Issued by State Governments” [English]
  • SEC Nigeria (2013) “Rules on SUKUK Issuance in Nigeria” [English].

Country: Oman

  • Capital Market Authority (CMA) “Sukuk Regulation” [Arabic] [English]

Country: Pakistan

  • SECP (2017) “Sukuk (Privately Placed) Regulations” [English]
  • SECP (2016) “Amendments in Issue of Sukuk Regulations” [English]

Country: Qatar

  • QFC (2011)  “Practice note No 2 on Taxation of Sukuk” [English]

Country: Tunisia

Country: United Arab Emirates

  • DFM “Standard For Issuing, Acquiring and Trading Sukuk” [English] [Arabic]
  • SCA (2014) “The Authority’s Board of Directors Decision No (16) of 2014 Concerning the Regulation of Sukuk” [English]

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