Sukuk mudarabah and sukuk musharakah in the light of accounting and auditing organization for Islamic institutions (AAIOFI) pronouncement 2008: challenges and opportunities
This article attempts to highlight some recent developments and issues in the sukuk market, especially in the light of the AAOIFI Shari`ah pronouncement of February 2008. In general, the market tends to understand and expect sukuk to be within the “fixed income” types of investment with minimal...
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| Format: | Article |
| Language: | English |
| Published: |
Jabatan Kemajuan Islam Malaysia
2009
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| Subjects: | |
| Online Access: | http://irep.iium.edu.my/9831/1/sukuk_mudarabah_and_sukuk_musharakah.pdf http://irep.iium.edu.my/9831/ |
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| Summary: | This article attempts to highlight some recent developments and
issues in the sukuk market, especially in the light of the AAOIFI
Shari`ah pronouncement of February 2008. In general, the
market tends to understand and expect sukuk to be within the
“fixed income” types of investment with minimal or controlled
risks and capital preservation features. In short, they expect sukuk
to behave like conventional bonds in terms of capital preservation,
periodic distribution frequency and rate of return. When sukuk
use debt-based structures and lease-based structures, it is not that
difficult to meet this fixed income characterisation. However,
when sukuk start to use equity contracts like mudarabah and
musharakah, such fixed income characteristic created some
anomalous situations and conflicts. There are apparently inherent
contradictions in the nature of mudarabah and musharakah
as equity contracts, and capital preservation and fixed income
nature of debt market environment in which sukuk are expected
to operate. Thus, additional “credit enhancements” and strategieswere introduced to the mudarabah and musharakah sukuk
structures to achieve capital protection and predictable periodic
returns similar with other fixed income or bonds instruments. These
credit enhancements to equity-based sukuk had been the subject
of strong criticisms by various parties in terms of their compliance
with the Shari`ah requirements of mudarabah and musharakah
contracts. This had led to the practices being reviewed by the Shari`ah
Board of AAOIFI. They finally came up with the February 2008
AAOIFI pronouncement that highlighted in unequivocal terms
that sukuk are inherently different from conventional bonds and
fixed income instruments, and thus, should behave differently. It
was also understood from the pronouncement that when the sukuk
structure is equity-based, certain basic rules of equity cannot be
compromised for the sake of meeting the commercial demand of the
market, which actually is conditioned by the prevalent interest-based
economy and philosophy. The AAOIFI pronouncement gave rise to
a re-examination of market perception of sukuk. Sukuk should not
and could no longer be perceived as strictly fixed income instruments
with capital preservation features. If the pronouncement is
stringently adhered to, the equity-based sukuk should behave like
equity instruments and not to be tweaked to fit into the “fixed
income box” |
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