Development of Sukuk Mudarabah in Malaysia: A Literature Review

Abstract

Sukuk is one of the Shariah-compliant financial instruments in the Malaysian capital market. The growth of the Sukuk in Malaysia has shown impressive development over the decades. In addition, Sukuk show grow positive trend internationally. Each country uses different types of contracts in their Sukuk. In Malaysia, various types of contracts are involved in the practice of Sukuk such as ijarah, mudarabah, musharakah, wakalah, ijarah or hybrid structures based on combinations of Shariah contracts and others. Thus, this study aims to examine the development of sukuk mudabarah in Malaysia. This study uses a qualitative approach involving a literature review covering books, journals, newspapers, official virtual sites and related circulars. The materials obtained will be analysed using the document analysis method. Based on the study's findings, one Mudarabah sukuk practiced in Malaysia, which was practiced by Cagamas Berhad in 1994. The findings of this study show that the mudarabah sukuk is less popular in the industry in Malaysia because it brings risks to investors. The Sukuk seem particularly advantageous for the Islamic banks rather than the investors. It is because the Sukuk assets could be falling below the par value which would likely lead to a reduced payout at maturity. Mudarabah Sukuk is an equity-based Sukuk structure where profits and losses are shared between the partners. Besides that, investment from a Shariah viewpoint does not allow a fixed return as well as the guaranteed principal amount at maturity to the investors.