Abstract
This research is a case study of two Ijarah Sukuk issuances in two countries. One issued by central bank of Bahrain and matured in 2014 and the other was issued by the Malaysian company TSH Resources Bhd and matured in 2017. By adopting library research and document analaysis, this research examines the terms and conditions of both cases based on what has been disclosed in the prospectuses. Accordingly, this study presents the impact of the Time Value of Money (TVM) in these cases and how it differentiates between genuine Ijarah Sukuk and a duplicate-bond Sukuk. The study revealed that there were some Shari’ah non-compliance issues in the implementation of Sukuk concept in both cases in a way it emulates conventional instruments featured as guaranteed-return instruments, which take into account TVM as an essential compenent in calculating its returns. However, such practice has a major effect on the genuineness of Sukuk, in terms of Shari’ah-compliance risk.
Highlights
The innovation of Sukuk came as an alternative to bonds (Zolfaghari, 2017), an interest-bearing instrument
For the purpose of clarification, we look at the practical side of bond pricing, for example, to price a bond that grants an expected rate of return (YTM) of 12% with a par value (PV) of $1,000 and a coupon rate (PMT) of 8% to be redeemed in 6 years
In the cases we presented, there were some factors that pushed Sukuk issuers to fix the return for investors applying Time Value of Money (TVM) theory
Summary
The innovation of Sukuk came as an alternative to bonds (Zolfaghari, 2017), an interest-bearing instrument. To issue genuine Sukuk, a real risk have to be borne by investors based on the legal maxim that states “al-ghunm bil ghurm” (Al-Zuhaily, 2009), meaning there is no return without being liable to a certain portion of risk. This is the very basic Shari’ah principle that is not applied in the conventional industry where lenders are compensated for using their money for a certain period of time (Ehrhardt & Brigam, 2009). These certificates represent real assets (Al-Juoriyah, 2009) by which the holders of these certificates can generate income depending on the performance of these assets and, in case of disputes, the recourse would only be to the assets not the originator that needed the fund
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