Islamic Capital Market Book Series Part I: Sukuk
The Securities Commission is pleased to invite contributors to the first of our six-part book series on the Islamic Capital Market. The book series are meant to provide a clear guidance on the fiqh understanding of the Islamic capital market; the practical workings of the Islamic capital market – both the instruments and the players; and the opportunities available in the Islamic capital market. The books are to be important references for industry players, legal and accounting practitioners, regulators and academicians involved in or studying the Islamic capital market.
Prospective contributors may select one or more chapters and are requested to send their chapter outline and synopsis no later than 30 June 2008. If accepted, contributors are required to submit their texts by 31 August 2008. Prospective contributors are advised that their work may be abridged or merged with that of others – in all cases contributors will be given due credit. Copyright for the submitted text will belong to the Securities Commission (“SC”) who reserves the final editorial discretion.
The content of the book will be based on the following outline:
| 1. | How Islamic Instruments differ from Conventional Bonds and Loans : It is useful to set a distinction between the Islamic and traditional markets. A key element of this short chapter will be to draw out the debate and criticisms of the Islamic financial market as to whether or not it is adapting to the existing market concepts or innovating in new space? |
| 2. | Shariah Ground Rules: In this chapter, the goal is to define several critical facts about sukuk and capital markets instruments. When are they tradeable? What are the key rules in light of the AAOIFI, IFSB and SC Shariah governance/regulations? What are the concerns that issuers, investors and bankers need to keep in mind with respect to the Shariah compliance of capital market transactions. |
| 3. | Legal Challenges in the Islamic Capital Market : The Islamic capital market is a new phenomena in a new business arena. The current level of market development is fairly immature. Although countries like Malaysia have taken the lead in the development of the market space and English law has proven helpful in the development of sukuk and Islamic financial market syndications, much more needs to be done. For the Islamic capital market to function smoothly, do we need a change in the legal framework of the English law, tax law and specific laws in different countries? |
| 4. | Murabahah Sukuk : There are two universes of murabahah sukuk: AAOIFI compliant pre-export and non-tradeable sukuk; and the family of Malaysian sukuk including murabahah Notes and albai bithaman ajil debt securities. The author will be expected to diagram the concepts, provide clear explanations, define marketability and global market issues. |
| 5. | Ijarah Sukuk: Ijarah sukuk is the seemingly preferred method and comprises up to one third of the market. The author will be expected to diagram the concepts, provide clear explanations, define marketability and global market issues. |
| 6. | Salam Sukuk: This non-tradeable sukuk method has been used predominately in Bahrain by the Central Bank of Bahrain as an open market operation to manage monetary policy as well as to offer an investment for the broader Islamic market. Could it also be used to syndicate a transaction like Egyptian Fertilizer or to create a price hedging or stock shorting vehicle? The author will be expected to diagram the concepts, provide clear explanations, define marketability and global market issues. |
| 7. | Istisna’Sukuk: This method has only been used to back securities in Malaysia. In the GCC, istisna’-ijarah sukuk have been issued. The author will be expected to diagram the concepts, provide clear explanations, define marketability and global market issues. The reasons for the differences in approach between the GCC and Malaysia are to be discussed as well as alternative methods that could fit into both regional approaches. |
| 8. | Musharakah Sukuk: Important developments in the expansion of the musharakah model used in Malaysia and Dubai need to be explained while keeping in mind the AAOIFI hot points. The author is expected to illustrate the concept, provide clear explanations, define marketability and global market issues. |
| 9. | Mudarabah Sukuk : The author will be asked to illustrate the concepts, provide clear explanations, define marketability and global market issues. The author will also keep in mind the AAOIFI hot points as well as important developments in the expansion of the mudarabah model used in Malaysia and Dubai. |
| 10. | Wakalah Sukuk: The author will be expected to diagram the concepts, provide clear explanations, define marketability and global market issues. The author will keep in mind the AAOIFI hot points as well as important developments in the expansion of the wakalah model used in the GCC. |
| 11. | New Sukuk Variants and Innovation : The sukuk market has been highly innovative. The concepts first mooted in the initial AAOIFI standard have been stretched into new spaces, never imagined. Forms and concepts not contemplated, hybrids, and other innovations have been brought forward. This author is obliged to test the breadth of innovation and describe how it applies to our evolving market. |
| 12. | Exotic Sukuk Features : Exchangeable, convertible, warrants attached, and other elements appended to securities are showing up in a large number of sukuk. What are the possibilities to structure exotic sukuk or add exotic features to transactions? What are the Shariah challenges, the practical and regulatory issues? When do exotics make sense? Why do exotics emerge in the market? |
| 13. | Key Regulatory Issues for Sukuk and the need for Regulatory Innovation : What are the top jurisdictions for issuing sukuk and what do they require? In this chapter, we examine the markets that are best organized for sukuk issuance: Kuala Lumpur, DIFX, Bahrain, London, and even New York. Basic ground rules are compared and contrasted. While chapter 2 is prescriptive, this chapter is descriptive. |
| 14. | Sukuk v. Syndication: What drives the decision to issue securities as compared to syndicating a transaction? How do the securities and syndicated markets interrelate? What are the Shariah factors governing both? Could sukuk be a vehicle for syndication? This chapter will define the decision to shift from the intermediated markets to the dis-intermediated markets. |
| 15. | Derivatives & Islamic Capital Markets: This is meant to be a simple chapter that introduces the challenges of derivatives in the sukuk context. The concepts of derivatives and hedging are controversial in the Islamic markets. The author will have to define the basis for the controversy and assist readers to understand the degree of pioneering required to invent Islamic derivatives; and then the amount of debate and work that has to be done to convince scholars that derivative concepts and hedging tools are permissible. This is a complex area in which the benefits are understood, but the rules of sarf cause the solutions to be more difficult than in the traditional market. |
| 16. | Sukuk and Capital Adequacy: Basel II mandates a number of changes in the treatment of different asset classes. This will affect how banks organize their risk assets and final exposures. This causes bank managements to consider securitization strategies, and to develop certain preferences in assets. In both cases, the new Basel II world prefers securities to granular exposures. These changes are discussed in this chapter. |
| 17. | Sukuk, Securitization and Treasury Management: The typical Islamic bank manages its liquidity either by negotiated mudarabah transactions managed by the Central Bank ( Malaysia) or investing in commodity murabahah structures. The former has been successful in the domestic economy, and it has pioneered a sukuk concept for global emulation. The latter, commodity murabahah, has a number of execution challenges. But, if a sufficient number of sukuk exist representing a diverse universe of credit and investment risks, then the Islamic capital markets should be able to make the treasuries of Islamic banks more efficient. Nevertheless other tools are required as well. This chapter will cover these issues as well as touching upon the standardization structures of the International Islamic Financial Markets. |
| 18. | How Expansive are the Frontiers : The Islamic Capital Market is a new concept. In fact, it is the cutting edge of a new business concept. With the Islamic financial concepts (as we know them) having been invented in the 1970’s, the market is defined by ijtihad. What are the next steps for product development and delivery? What are the limits? How does one manage the limits? Are the limits harmful to the market, but good for the public? Is that a contradiction? How should regulators and bankers learn to live in this dynamic context? |
| 19. | Performance Measurements for Islamic Instruments: Do standard metrics for measuring the conventional market apply to the Islamic Capital Market? The author will be asked to discuss and compare the tools for measuring risk and performance in the Islamic space, and how similar or different are they compared to traditional metrics? |
| 20. | Shariah Oversight: This chapter differs from Chapter 2 in that it discusses the ongoing integration of Shariah oversight in the Islamic capital markets post issuance - once the deal is funded and the Sukuk is outstanding. How can this be managed? What are the best practices, or recommendations for best practices? Can scholars keep up with the market and what skills do the scholars need in order to analyze the underliers of Sukuk? |
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