What is the structure of sukuk?
To structure sukuk, the entity seeking to raise finance (“originator”), will typically incorporate a special purpose vehicle (SPV), and transfer title to the assets it intends to finance through sukuk. The SPV will then issue sukuk and use the funds raised to pay the originator for the assets.
How are sukuk bonds structured?
An investor in a sukuk, therefore, does not own a debt obligation owed by the bond issuer, but instead owns a piece of the asset that’s linked to the investment. This means that sukuk holders, unlike bond holders, receive a portion of the earnings generated by the associated asset.
What are different types of sukuk?
Sukuk can be divided into four several types based on the structure namely: asset-based Sukuk , asset-backed Sukuk , exchangeable Sukuk and hybrid Sukuk . Most of the outstanding Sukuk issuances are asset-based.
Are sukuk closer to equity or to debt?
Asset-based sukuk are closer to debt because sukuk holders have recourse to the originator if there is a shortfall in payments.
Do you pay zakat on sukuk?
c. 1. Sukuk Al Ijarah (Lease): The ‘Zakah’ is not due on the principal value of the certificates. However, it is due on the rental proceeds at the rate of 2.5% for a lunar year or 2.577% for a solar/Gregorian year once the rental proceeds reach the minimum threshold and complete the one year cycle in possession.
What is Al Bai Bithaman Ajil?
Exchange Contract Bai’ Bithaman Ajil (BBA) refers to a sale and purchase transaction of an asset to be paid on later date (deferred payment) based on a price, which include a profit margin agreed to by both contracting parties.
What is hybrid sukuk?
ABSTRACT: Hybrid sukuk is a form of alternative structure of sukuk that aimed to complement the use of shariah compliant securities that entirely based on debt.
How do I invest in sukuk bonds?
Just like regular bonds, investing directly in a Sukuk bond comes with heavy demands. From the minimum amount to the required knowledge and time, it’s no easy feat. A tested alternative is to invest in them through Sukuk funds; mutual funds that pool your cash with those of others to invest in Sukuk bonds.
What is a Mudarabah Sukuk?
Although it is possible to interpose a sukuk issuance onto any Islamic financing structure, historically, the most prevalent structures used in the sukuk space were Mudarabah, Musharakah, Murabahah and Ijarah, structures. Mudarabah Sukuk are investment Sukuk that represent common ownership of units of equal value in the Mudarabah equity;
What is a Musharakah sukuk?
Musharakah Sukuk are used for mobilizing the funds for establishing a new project or developing an existing one or financing a business activity on the basis of partnership contracts. The certificate holders become the owners of the project or the assets of the activity as per their respective shares.
How are sukuk structured?
Unlike conventional ABS structures, Sukuk need to have an underlying tangible asset transaction either in ownership or in usufruct. The securitisation of pure cash flow streams from credit portfolios as undertaken in the mortgage market, for instance, cannot be structured in the same way.
What is a Wakalah sukuk?
In a Wakalah Sukuk, an Islamic financial institution can package, its Ijarah contracts, murabahah receivables and any shares or Sukuk certificates held by it into a portfolio which is then sold to the investors. The income derived from the portfolio is used to service the coupon payments due under the sukuk certificates.