Md. Fariduddin Ahmed is a former managing director and CEO of Islami Bank Bangladesh Limited and Export Import Bank of Bangladesh Ltd. He also served as advisor to Export Import Bank of Bangladesh Ltd. and head of Islamic banking at AB Bank Limited. The document discusses Sukuk, which are defined as certificates representing ownership in tangible assets or financial obligations from commercial activities. It describes different structures of Sukuk based on Shariah contracts and classifications based on function. The document also compares Sukuk to bonds and asset-backed securities, and discusses some issues, opportunities, and challenges in the Sukuk market. The following slides discuss Islamic equity markets, including the concepts of risk sharing, types

1. Presented By
Md. Fariduddin Ahmed
Former Managing Director & CEO
Islami Bank Bangladesh Limited
Export Import Bank of Bangladesh Ltd.
Sponsor CEO Jaiz Bank Ltd, Nigeria
Former Advisor
Export Import Bank of Bangladesh Ltd.
Former Head of Islamic Banking
AB Bank Limited
Secretary General
Bangladesh Islamic Banker’s Association
Member: Shariah Supervisory Committee
of several Islamic Banks

3.  Sukuk means Certificates.
 Islamic securities are popularly known as Sukuk (Plural of
Sakk).
 Sukuk are papers representing financial obligations
arising from trade and other commercial activities.
 It is also similar to trust certificate which represent a
share in an asset of a business venture.
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Sukuk
Meaning of Sukuk:

4. The Accounting and Auditing Organization for Islamic Financial
Institution (AAOIFI) in its shariah standard 17(2), defined
investment Sukuk (Sukuk Istithmar) as “Certificates of equal
value representing undivided shares in ownership of tangible
assets, usufruct and services, assets of particular projects or
special investment activity”. The Islamic Financial Services
Board (IFSB), in its Capital Adequacy Standard (IFSB-2), defined
Sukuk as “Certificate that represents the holder’s proportionate
ownership in an undivided part of an underlying asset where
the holder assumes all rights and obligations to such asset”.
Securities Commission of Malaysia, in its guideline on Islamic
Securities 2004, defined Sukuk as a “document or certificate
which represents the value of an asset”.
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Sukuk
Definition of Sukuk:

5.  The definition of the Securities Commission Malaysia is
the broadest and encompasses the other two definitions.
 AAOIFI & IFSB do not recognize financial assets (i.e.
receivables) as assets that would qualify to form the
underlying assets of a tradable Sukuk, while the Security
Commission Malaysia does allow such assets.
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Sukuk
Differences among the above three definitions:

6.  It is not permissible to trade in Murabaha Certificates
after delivery of the Murabaha commodity to the buyer.
However, trading of Murabaha Certificates is permissible
after purchasing the Murabaha commodity and before
selling it to the buyer (Standard 17 of AAOIFI).
 Salam Sukuk is not tradable (IFSB Standard 2, Paragraph 196).
 Securities Commission Malaysia allows a Shariah
Compliant debt to be sold at a discount in a securitization
exercise. However, this is not permissible according to
global shari’ah standard due to differences in opinion
regarding sale of debt (bay’al dayan).
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Sukuk
Difference of opinion regarding tradability of Sukuk:

7. Although Sukuk are generally viewed as contemporary class of Islamic
Financial instruments, their usage can be traced back to the 1st
century
AH during the Umayyad Caliphate.
“Yahya related to me from Malik that he had heard that receipts (Sukuk)
were given to people in the time of Marwan ibn al-Hakam for the
produce of the market at al-Jar. People bought and sold the receipts
(sukuk) among themselves before they took delivery of the goods. Zayd
Thabit and one of the Companions of the Messenger of Allah, may Allah
(subhanahu wa ta ala) bless him and grant him peace, went to Marwan
ibn al-Hakam and said, “Marwan! Do you make usury halal?” He said, “I
seek refuge with Allah! What is that?” He said, “These receipts (sukuk)
which people buy and sell before they take delivery of the goods.”
Marwan therefore sent a guard to follow them and to take them from
people’s hands and return them to their owners.
Source: Al-Muwatta’ Book 31, Number 31.19.44.
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Sukuk
Origin of Sukuk:

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Sukuk
Sukuk Structures:
Sukuk Based on Shari’ah Contracts
Sales-based Lease-based Partnership-based Agency-based
BBA
Murabahah
Salam
Istisna
Ijarah
Ijarah
Muntahiyah
Bittamlik
Ijarah
Mawsufah fi
Dhimmah
Mudarabah
Musharakah
Wakalah bi
Istithmar

9.  Corporate:
Issuers are incorporated companies which are non-
government firms.
 Sovereign:
Issuers are government or sovereign entities.
 Exchangeable and Convertible:
Sukuk may be converted into shares (equity) at maturity
or other trigger events.
 Subordinated:
The repayment of the sukuk is subordinated to the
creditor or depositor.
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Sukuk
Sukuk classification based on commercial function:

10.  Stapled:
Two instruments are attached together and cannot be
traded separately.
 Asset-Backed:
Are securities backed by an income generating asset
with stable cash flow.This involves true sale securitization
where the recourse is to the asset and not the originator.
 Project financing:
Proceeds of sukuk is used to finance a project. Repayment
to investors comes from cash flow generated from the
project.
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Sukuk
Sukuk classification based on commercial function (Contd…)

11. Bond
Asset-Backed
Securities (ABS)
Sukuk
Primary
level
relationship
Loan Sale of debt or an
income generating
asset
Variety of contracts but
rarely uses a loan
Return to
investors
Interest on loan.
(Recourse to
issuer-unsecured)
Income generated
from underlying
asset (recourse to
asset)
Profit elements in sale, lease
or partnership contracts.
Tradability
in
secondary
market
Sale of debt Sale of debt or
income generating
asset
Depends on nature of
underlying asset. Global
sharia’ah standard does not
allow sale of debt with
discounting, but allows sale
of tangible assets, some
intangible assets and interest
in ventures.
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Sukuk
Differences between Bond, Asset-Backed Securities and Sukuk:

12.  Sukuk-debt or equity?
It can either be debt or equity. It depends on local legal
framework and tax structure.
 Sukuk trading:
Currently, there is limited secondary trading of sukuk. Trading
requires structuring of the sukuk as per guidelines of the
securities authority of the concerned countries.
 Sukuk Pricing:
 LIBOR +
 It’s a reference/benchmark.
 Depends on demand and supply.
 Sukuk Default:
Default may occur. It depends on the efficiency and honesty of
the issuers/originators
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Sukuk
Issues, Opportunities & Challenges in Sukuk Market:

13.  The central idea underlying Islamic equity is the notion of
sharing risks and rewards. The Islamic nominate
contracts of mudarabah and musharakah are important
instruments in operationalising Islamic equity.
 Jurists have generally approved of the concept of modern
day corporations and the secondary market trading of
shares.
 In the area of valuation of equity, there is still much
reliance on conventional finance theories. Hence, there is
a research gap to be filled- Islamic inputs on equity
valuation.
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Sukuk
Islamic Equity Market:

14.  The use of instruments and practices such as preference
shares, stock index futures and short-selling has been
allowed by some shari’ah jurisdictions, despite the
presence of dissenting opinions and objections by some
others.
 Unit trusts or mutual funds, real estate investment trusts
(REITs) and exchange traded funds (ETFs) are important
instruments in Islamic equity and have great potential to
further develop the Islamic capital market.
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Sukuk
Islamic Equity Market (Contd…)

15.  The Shari’ah stock-screening process comprises two
main components- sector screening and financial
screening- and also raises the issue of dividend
purification. There are still a number of issues-being
debated, thus making shari’ah stock-screening a
dynamic process, subject to further refinement and
improvement.
 Equity market indices serve important roles, and their
functionalities in Islamic equity markets are no different.
 Speculative trading in equity markets can have
undesirable consequences, and it is envisioned that an
Islamic equity market should minimize its prevalence.
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Sukuk
Islamic Equity Market (Contd…)

16. 16
Allah Hafez