Table Of ContentFORWARD
LEASE SUKUK
IN ISLAMIC
CAPITAL
MARKETS
Structure and Governing Rules
Ahcene Lahsasna,
M. Kabir Hassan,
Rubi Ahmad
Forward Lease Sukuk in Islamic Capital Markets
Ahcene Lahsasna · M. Kabir Hassan
Rubi Ahmad
Forward Lease Sukuk
in Islamic Capital
Markets
Structure and Governing Rules
Ahcene Lahsasna Rubi Ahmad
Salihin Shariah Advisory Department of Finance and Banking,
Kuala Lumpur, Malaysia Faculty of Business and Accountancy
University of Malaya
M. Kabir Hassan Kuala Lumpur, Malaysia
Department of Economics
and Finance
University of New Orleans
New Orleans, LA, USA
ISBN 978-3-319-94261-2 ISBN 978-3-319-94262-9 (eBook)
https://doi.org/10.1007/978-3-319-94262-9
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reface
The present book focuses on one of the instruments in Islamic capi-
tal market that is forward lease Sukuk also known as Ijarah mawsufah
fi dhimmah. It discusses its structure, governing rules and analyse the
Shari’ah issues along with the issuance process of this type of Sukuk. The
present book adds value to Sukuk market and contributes to the growth
and expansion of the Islamic capital market industry by presenting a
comprehensive structure of forward lease which is regarded as innovative
class asset. The idea of forward lease Sukuk is based on raising fund from
non-existent asset where the subject matter does not exist during the
time of the Sukuk issuance. This Shari’ah flexibility that exist in Ijarah
makes Ijarah sukuk mawsufah fi dhimmah a dynamic financial instru-
ment and resilient structure in the Islamic capital market that deserves
to be promoted and encouraged in the related industry. The forward
lease Sukuk related to tangible portfolio consists of Istisna and Ijarah;
hence, it is a combination of two contracts where the rules of Ijarah in
Islamic law will be applicable to Ijarah sukuk and the rules of Istisna will
be applicable to Sukuk istisna. However, as overall structure the forward
Ijarah sukuk is considered as a part of Ijarah sukuk portfolio that has
more features and advantages that make it viable and dynamic instru-
ments in Islamic capital market. Hence, the present book discusses the
concept of forward lease Sukuk, in relation to its features, characteristics,
structure, process of issuing, rules of trading in the secondary market,
and other relevant issues and aspects. The book shows the significant fea-
tures of forward lease Sukuk as a Shari’ah compliant instrument in the
v
vi PREFACE
capital market and its vital contribution to project construction and man-
ufacturing within the expanding field of Islamic finance.
Objectives Of the bOOk
This book aims to discuss the concept, features, characteristics, structure,
mechanism, process of issuing, trading in the secondary market, and
other relevant issues and aspects that are relevant to Ijarah sukuk. Hence
the book attempts to attain the following objectives:
1. To present a comprehensive structure of forward Sukuk as a promi-
nent and promising instrument in the capital market.
2. To critically discuss the process of issuing and trading a forward
lease Sukuk in the primary and secondary market.
3. To emphasize on the significance and importance of forward lease
Sukuk in the Islamic capital market in terms of investment and
fund mobilization.
4. Discuss and analyze different issues and challenges in forward lease
Sukuk from the perspective of Shari’ah, law and marketability in
the Islamic finance industry.
5. Identify the causes behind the low tendency toward issuance of
Sukuk based on forward lease structure as compared to others
types of Sukuk.
scOPe Of the bOOk
This book proposes to cover the various types and characteristics of the
Sukuk be it debt-based, equity-based, or a hybrid of both. The book will
be highlighting on the popular Sukuk with some analysis. It will focus
on Ijarah sukuk as prominent Sukuk in the Islamic capital market. The
concept of forward lease Sukuk is based on the theory of ijarah and
istisna. As previously mentioned, it is important to discuss the basic
rules of ijarah under Islamic law as it represents the underlying theory
of Sukuk structure. In addition to that, the book will look into the dif-
ferent types of ijarah, which includes the forward lease that represents
the main concern of the present book. A cross comparison between dif-
ferent types of Ijarah sukuk is needed to have an appreciation of the fea-
tures and the different characteristics of forward lease Sukuk. It should
PREFACE vii
be noted that forward lease Sukuk is a part of Ijarah sukuk; however,
there are special features in forward lease that makes it unique, flexible
and a potential contract that can play a prominent role in the capital mar-
ket. Furthermore, the structure of forward lease is different from normal
Sukuk thus there will be some issues pertaining to forward lease Sukuk
that are related to legal and Shari’ah aspects which the book will high-
light and discuss in order to address the relevant solutions and to ensure
the Shari’ah compliant procedure in forward lease Sukuk.
Kuala Lumpur, Malaysia Ahcene Lahsasna
New Orleans, USA M. Kabir Hassan
Kuala Lumpur, Malaysia Rubi Ahmad
c
Ontents
1 Introduction to Sukuk 1
1.1 Introduction 1
1.2 An Overview on Sukuk 1
1.3 Sukuk as an Investment Certificate 2
1.4 Sukuk Versus Bonds 5
1.5 The Common Features Between Sukuk and Bonds 6
1.6 Sukuk Versus Shares 6
1.7 Sukuk Versus Securitization 8
1.8 Conclusion 9
References 9
2 An Overview of Islamic Capital Market (ICM)
and Sukuk Industry 11
2.1 Introduction 11
2.2 General Introduction to Islamic Capital Market
(ICM) 12
2.3 General Overview on Sukuk Market in Islamic Finance 19
2.4 The Growth of Sukuk Industry and Its Challenges
in the Current Global Financial Market 23
2.5 An Analysis of Sukuk in Islamic Capital Market 27
2.6 Key Milestones in Sukuk Market 30
2.7 Selected Notable Sukuk Issued 30
2.8 Conclusion 34
References 35
ix
x CONTENTS
3 Sukuk in Islamic Capital Market 37
3.1 Introduction 37
3.2 Definition and Concept 37
3.3 Characteristics of Investment Sukuk 38
3.4 Shariah Rulings and Requirements for Sukuk 39
3.5 Shariah Foundation and Risk Factors in Sukuk 42
3.6 Conclusion 47
References 47
4 Types of Sukuk, Their Classification
and Structure in Islamic Capital Market 49
4.1 Introduction 49
4.2 Types of Sukuk 49
4.3 Calcification of Sukuk Based on Shariah Contract 68
4.4 Conclusion 85
References 85
5 Theory of Ijarah, Securitization and the Concept
Financial Certificate 87
5.1 Introduction 87
5.2 Ijarah in Islamic Finance 87
5.3 Securitization and the Financial Certificate 95
5.4 Ijarah Sukuk in Islamic Capital Market 101
5.5 Conclusion 110
References 110
6 Forward Ijarah Sukuk: Concept, Issuance,
Structuring and General Governing Rules 111
6.1 Introduction 111
6.2 Forward Lease 112
6.3 Issuance of Forward Lease Sukuk 134
6.4 Illustration of the Process and Phases of Sukuk
Issuance (The Structure of Forward Lease Sukuk) 137
6.5 Structuring Forward Sukuk al-Ijarah and Steps
Involved 138
6.6 General Rules of Forward Leasing 139
6.7 Issues in Forward Ijarah Sukuk 140
6.8 Conclusion 147
References 147
CONTENTS xi
7 Major Principles, Terms and Conditions
Governing Ijarah Sukuk Issuance as Practiced
in the Islamic Capital Market 149
7.1 Introduction 149
7.2 The Description of Islamic Structure
of the Issuance 149
7.3 The Important Shariah Aspects of the Structure
of Ijarah Sukuk 153
7.4 Important Shariah Aspects in the Legal
Documents 157
7.5 Other Terms and Condition in Ijarah Sukuk Issuance 159
7.6 Conclusion 170
8 Forward Lease/Ijarah Sukuk: Issues, Challenges
and Shariah Compliance 171
8.1 Introduction 171
8.2 Shariah Issues in Forward Lease Sukuk 171
8.3 The Principles Terms and Conditions (PTC)
in the Sukuk Issuance 172
8.4 The Legal Documentations/Transaction
Documents in Sukuk Issuance 173
8.5 The Structure of the Sukuk Issuance 176
8.6 The Trading Issue in Sukuk 181
8.7 Legal Issues in Forward Ijarah Sukuk 181
8.8 Industry Challenges of Forward Ijarah Sukuk 182
8.9 Industry Acceptance of Forward Ijarah Sukuk 183
8.10 Future Direction of Sukuk Issuance Based
on Forwards Lease Sukuk 184
8.11 The Sukuk That Have Been Issued Based
on Forward Lease Sukuk 184
8.12 Conclusion 185
9 Ijarah Sukuk and Forward Lease
Sukuk—Case Study 187
9.1 Introduction 187
9.2 Ijarah Sukuk 187
9.3 Forward Lease Sukuk Case Study 197
9.4 Conclusion 204
References 205
