Abstract
Islamic Capital Markets (ICM) are playing an important role in raising long term funds and thus playing their role in economic growth and development of a country. Sukūk are important Islamic Capital Market instruments through which long term funds are obtained from general public. Sukūk are certificates of equalvalue representing undivided shares in ownership of tangible assets, usufructs and services, or in the ownership of the assets of particular projects or special investment activities. Sukūk market in Pakistan is regulated by the Securities and Exchange Commission of Pakistan (SECP). Despite the continuous growthof Sukūk market in Pakistan, there are various Shari‘ah issues which are still prevalent in the Sukūk structures which need our attention in order to make the Sukūk Shari‘ah compliant in true spirit of Islam. The main objective of this paper to discuss and elaborate the various Shari‘ah issues prevailing in IslamicCapital Markets of Pakistan, especially related to Sukūk. It is argued that while structuring Sukūk, the various features of conventional bonds are replicated while compromising the various Shari‘ah injunctions. The current practices of various financial institutions are discussed and various Shari‘ah issues related to different types of Sukūk are identified and the point of view of various scholars on these issues is also discussed. The various Shari‘ah issues related to Sukūk which are identified in this article include purchase undertaking in equity based structures, late payment penalty upon default, ownership status in asset basedtransactions and trading of debt based Sukūk. So this paper highlights the need for a balance between growth in the Sukūk market and meeting the Shari‘ah requirements while structuring Sukūk.
Highlights
Islamic Capital Markets (ICM) are playing an important role in raising long term funds and playing their role in economic growth and development
If we look at the current practices in Islamic Capital Markets of Pakistan and look at the structure of Sukūk al Ijāra and read the terms and conditions of the certificate issued by The Third Pakistan International Sukūk Company Limited (3.2 Limited Recourse and Non-Petition), we come to know that the true ownership is not transferred to the issuer and rue ownership of Motorway M-2 has not been transferred to the issuer but only a beneficial ownership or equitable interest is transferred to the Sukūk holders and a true sale is not carried out
If we look at the current practices in Islamic Capital Markets of Pakistan and look at the structure of Sukūk al Ijara and read the terms and conditions of the certificate issued by The Third Pakistan International Sukūk Company,23 we come to know that the govt. acts as servicing agent, lessee and obligor at the same time which means that the party giving the guarantee in this case is not an independent body which raises the questions on the Shari‘ah compliance of the Sukūk structures in Pakistani Capital Markets
Summary
Islamic Capital Markets (ICM) are playing an important role in raising long term funds and playing their role in economic growth and development. Pakistan has issued four international Sukūk till year 2017. First international Sukūk of USD 600 million was issued in year 2005 withsemi-annual floating rate of return (LIBOR+ 220 bps). The second international Sukūk of USD 1 billion was issued by Pakistan in year 2014 at profit rate of 6.75 percent. Third and fourth international Sukūk of USD 1 billion each was issued in year 2016 and 2017 respectively. These international Sukūk were listed on at Luxemburg stock exchange.. Issued in Pakistan so that these issues can be addressed effectively in order to make the structures of Sukūk Shari‘ah compliant and in true spirit of Islam
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