Abstract
This paper identifies the various risks in sukuk structures, sharia’h permissible risk hedging techniques and certain regulatory, legal and infrastructural challenges which this novel product is facing in the modern global financial system. The analysis demonstrates that though sukuk is a viable device for asset-monetization, its complex structure necessitates the development of innovative sharia’h permissible risk management tools which can be formulated within the sharia’h framework of Al-Khiyar. Since the sukuk originated from emerging markets which are mostly characterized with secrecy and institutional imbalances, these circumstances create great hardships for the bankers and regulators to observe the progress of the corporate being financed. In this research it is argued that this situation strongly demands greater transparency and disclosure in sukuk structures coupled with profound regulatory, legal and institutional reformation in emerging markets. The research finally argues that sustainable market for the sukuk is doomed with uncertainties, unless the innovative process for sharia’h compatible risk hedging techniques continues and aforesaid reformations are initiated. Keywords: Sharia, Sukok, Risk, Islamic, Finance, Management.
Highlights
In Islamic finance industry sukuk has emerged as a cutting-edge phenomenon, paving the way for multi-billion asset monetization (Hussain, Shahmoradi, & Turk, 2015)
Given the different nature of risks underlying sukuk, the risk management strategy will undoubtedly be different from that of conventional one (Nasir & Farooq, 2017). This is because of the fact that mostly conventional risk management tools are structured around interest or over speculation which do not hold any place in Islamic finance
Sukuk according to definition given in The Accounting and Auditing Organization for Islamic Financial Institution (AAOIFI) Sharia’h Standards No 17 are certificates of equal value representing, after closing subscription, receipt of the value of the certificates and putting it use as planned, common title to shares and rights in tangible assets, usufructs, and services, or equity of given project or equity of a special investment activity (Alamad, 2017)
Summary
In Islamic finance industry sukuk has emerged as a cutting-edge phenomenon, paving the way for multi-billion asset monetization (Hussain, Shahmoradi, & Turk, 2015). Sukuk according to definition given in The Accounting and Auditing Organization for Islamic Financial Institution (AAOIFI) Sharia’h Standards No 17 are certificates of equal value representing, after closing subscription, receipt of the value of the certificates and putting it use as planned, common title to shares and rights in tangible assets, usufructs, and services, or equity of given project or equity of a special investment activity (Alamad, 2017) It implies an undivided beneficial ownership of an underlying asset wherein the risk and return associated with cash flows generated by a particular asset is rested on investor.
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