Ijarah Sukuk Research Articles

Constructing Sukuk-linked Awqaf (endowment) model

PurposeIslamic endowment (awqaf), particularly awqaf land, is one of the potential Islamic social assets to serve the public interest, particularly to provide public infrastructures such as business centers, public hospitals and airports. However, unfortunately, most of them are still unproductive lands, especially in the form of idle lands. One problem to use such unproductive awqaf lands is the lack of awqaf land model as the platform to use such awqaf lands. This paper aims to construct and propose a model called Sukuk-linked Awqaf (SLA) to use awqaf lands as an underlying for Sukuk issuance.Design/methodology/approachThis paper constructs mechanisms and formulas of SLA by involving Sukuk issuer, awqaf management (Nadzhir), Sukuk investors and tenants of the infrastructure. In particular, the SLA model is proposed based on the unique characteristics of both awqaf asset and Ijarah (leasing) Sukuk, considers the intention of state-owned enterprise (SOE) to construct buildings to be rented to the tenant and to be owned by the awqaf manager and formulates equations and uses net present value theory to determine Nadzhir and Sukuk investors’ investment decisions.FindingsEngaging awqaf land with SLA model can ease its benefit for the society. The model addresses the strategic roles of Nadzhir, SOE, investors and contractor in using awqaf land.Research limitations/implicationsThe SLA model could ease related parties to use the awqaf land for the sake of public benefits.Originality/valueTo the best of the author’s knowledge, this is the first assessment on the potential implementation of Islamic hedging with a commodity as an alternative hedging in Indonesia.

The Application of Service Ijarah in Islamic Finance

This research aims to explore the current application of Service Ijarah in Islamic Finance across three major sectors of Islamic commercial finance: Islamic banking, Islamic Insurance, and Islamic capital market. Furthermore, this study identifies potential challenges and risks associated with the use of Service Ijarah by comparing it with alternative Shariah contracts. This research employs a qualitative desk review research method to delineate the practical application of the Service Ijarah. The data was primarily collected from the official websites, product disclosure sheets, and annual reports of Islamic finance and banking institutions in different jurisdictions. Additionally, other secondary sources were used, including Shariah Standards, policy documents, journal articles, and other forms of reports. At least 15 Islamic banks globally have used the contract for financing services such as education, marriage, travel, home renovation, green technology, professional services, and Hajj & Umrah in countries including Oman, UAE, Malaysia, Maldives, Bangladesh, Bahrain, Tanzania, and Nigeria. The contract has yet to be practically applied within the Islamic capital market and Islamic insurance (Takaful). However, there is potential for the structuring of service-based Ijarah Sukuk and the development of Takaful products to cover service-ijarah-based financings. The absence of guidelines on Service Ijarah and the difficulty of finding reliable service providers for custom jobs may present challenges for the banks. This research is expected to be beneficial for industry practitioners seeking to explore a contract that remains relatively underutilised in the Islamic finance field and Shariah and regulatory authorities. It also examines the potential for service-based Ijarah Sukuk and AAOIFI's role in facilitating the development of Service Ijarah-based products.

FINANCIAL AND NON-FINANCIAL FACTORS AFFECTING SUKUK IJARAH RATINGS

This study aims to analyse what affects the rating of sukuk ijarah as seen from financial and non-financial factors. This research is quantitative research using the SPSS application. the sample of this research is companies that issue sukuk ijarah in the 2014-2018 period and are rated by PEFINDO. Indicators of financial factor variables are measured by CR (Current Ratio), ROA (Return on Asset), TATO (Total Asset Turn Over) and DER (Debt to Equity Ratio). While the non-financial factors used are the age of sukuk. The results of this research are financial ratios that affect sukuk ratings are CR and ROA. Where seen from the partial test these two ratios are significant. Meanwhile, if examined simultaneously CR, ROA, TATO, DER and sukuk age on sukuk ratings, the results have a significant effect. This means that all financial ratios and sukuk age simultaneously affect the ijarah sukuk rating.

Causes for Near Default Sukuk Cases in the 21st Century and Their Rescue Mechanisms

This study aims to examine the reasons that triggered sukuk to nearly default in the 21st century and the rescue mechanisms they used under the circumstance. This research is constructed as a case study examining selected near default sukuk cases from across jurisdictions. It is found that the main issues that triggered sukuk to nearly default are the lack of development of shariah governance, the backwardness in harmonizing shariah standards, and poor risk management through the business cycle of the underlying project. It is also found that two main rescue mechanisms are used in handling the sukuk that nearly defaulted. The first way is using commodity murabaha to pay out ijarah sukuk holders, as in the case of Ingress sukuk. The second way is by altering the terms of mudharabah sukuk to accommodate the aspiration of the sukuk holders, as in the case of Dana Gas sukuk. An anomaly in this regard is observed in Nakheel's case, where no restructuring effort was conducted as the Emirate of Dubai covered some of the debts.

Three-way interaction moderation model of legal origin in strengthening the role of firm characteristics in choice of sukuk type

Purpose This study aims to learn how a three-way interaction moderation model is used to analyse the role of country-specific characteristics, in the form of the implementation of Sharia law and legal origin in a particular country, in the choice of sukuk type. Design/methodology/approach The firm profitability and firm leverages of sukuk issuer are used as the firm characteristics that can influence the choice of sukuk type between Mudharaba sukuk, Ijara sukuk and Murabaha sukuk. The research sample of 545 global sukuk issuances, obtained from the IIFS database, includes the issuance of Mudharaba sukuk, Ijara sukuk and Murabaha sukuk from ten sukuk issuer countries all over the world. Findings The research results show that the probability of choosing Mudharaba and Ijara sukuk is found in issuers sukuk with a high firm leverage, while the probability of choosing Murabaha sukuk is found in issuers sukuk with a high firm profitability. A three-way interaction moderation model is used in this research to explain that sukuk issuers in countries that implement Sharia law and adopt a legal origin common law system will have a higher choice of Mudharabah and Ijarah sukuk types if the firm’s leverage is high. If the firms’ profitability is high, then the sukuk issuer prefers Murabaha sukuk. Research limitations/implications The use of firm’s characteristic variables is based solely on trade-off theory and pecking order theory. Also, limitations on the implementation of Sharia law in countries that do not provide opportunities for countries that apply a mixed law system. Practical implications The role of Sharia law and common law legal origin is proven, through a three-way interaction model, to strengthen the interaction of the firm leverage and choice of Mudharaba sukuk. Social implications Legal certainty for Islamic financial institutions is created in the context of ease of investing in sukuk. Flexibility in the structure is also one of the factors that encourage the development of market acceptance of sukuk. The right structure of the sukuk can be used for specific target markets. Originality/value There has been no study carried out on a three-way interaction moderation model used to analyse the role of country-specific characteristics. The role of Sharia law and common law legal origin is proven, through a three-way interaction model, to strengthen the interaction of the firm leverage and choice of Mudharaba sukuk.

Evaluating the current interest-free monetary policy tools and suggesting a new one: case of Turkey via examples of Malaysia, Pakistan, and Bahrain

PurposeThis paper aims to achieve two goals: first, to evaluate the existing interest-free monetary policy tools in the major Islamic financial hubs of Malaysia, Pakistan and Bahrain and; second, to suggest how monetary policy tools in Turkey can be used in other countries.Design/methodology/approachThis study follows a qualitative research method based on literature review, comparison, evaluation and design.FindingsThe policy rate cannot be used due to Shariah concerns. The reserve requirement depends on qard, and the reserves should be kept separately in the central bank. In terms of ijarah sukuk, Shariah concerns should be taken into account and a new structure, as displayed in Figure 3, should be followed. Government investment certificates can be used as an interest-free monetary policy tool. A genuine mudarabah interbank investments can also be used. Wadiah acceptance with no habitual gift can be used as well, and Tawarruq and central bank notes are not preferable due to Shariah concerns as well. Having said that, a Turkey-based tawarruq platform can be structured for others to use instead of applying to London.Originality/valueThis paper’s unique suggestion is to develop an interbank taqaruz market and a taqaruz method with the central bank. It is also unique for Turkey in the subject.

Determinants of Sukuk credit rating: evidence from issuing firms in Malaysia

PurposeThis study aims to examine the determinants of Sukuk credit ratings of issuing firms in Malaysia, and the rating changes from lower to higher rating and vice versa.Design/methodology/approachA total of 328 Sukuk issuances and 1,110 Sukuk rating announcements from 2009 to 2014 were analysed using generalized ordered logit regressions approach. Firm financial characteristics, corporate governance attributes, macroeconomic factors and Sukuk structures (debt or equity based) were among the important determinants used to explain the different Sukuk credit ratings.FindingsThe results indicate a positive association of Sukuk credit rating with issuing firm’s financial information, governance attributes and the Sukuk structure whilst the macroeconomic factors did not explain the changes in the Sukuk credit rating. Specifically, firm size, profitability and leverage characteristics had significant positive effect on Sukuk credit rating for listed firms whilst only firm’s profitability had a positive effect on Sukuk credit rating by unlisted firms. With regard to governance, the board structure which includes board size, board independence and CEO/Chairman non-duality is associated with positive Sukuk credit rating for listed firms. Only financial report audited by big four auditors is associated with positive Sukuk credit rating for unlisted firms. Equity-based Sukuk are associated with positive Sukuk credit rating for listed firms while for unlisted firms only the Ijarah Sukuk had a positive Sukuk credit rating.Research limitations/implicationsData on credit rating is scarce and had to be hand-collected from published reports. Furthermore, issues on the lack of standardisation of Islamic contracts in different geographical areas could constrain on the comparability of findings on determinants of ratings in different jurisdictions.Practical implicationsThe findings provide some guide to the rating agencies to objectively assess the issuer’s creditworthiness that could mitigate default risk. Mitigating the default risk will boost investors’ confidence and credibility of credit rating agencies.Originality/valueThis study examines the determinants of Sukuk credit rating of issuing firms in Malaysia, which include not only the listed firms but also the unlisted firms.

Perlunya Standar Akuntansi Keuangan Pemerintah atas Sukuk Negara untuk Mewujudkan Akuntabilitas Syariah

This study aims to analyze the practice of Government Accounting Standards for Sovereign Sukuk transactions according to PSAK 110 (revised 2015), AAOIFI FAS 33, PMK on Central Government Accounting Policies, and PMK on Government Debt Financial Reporting Accounting Systems using a case study qualitative approach. The result of the research is the need to improve the accounting treatment for Sovereign Sukuk. Sovereign Sukuk is recognized when the obligation arises, namely at the time of the sale transaction. However, this recognition does not regulate each Sovereign Sukuk contract. The measurement of Sovereign Sukuk is regulated by two regulations, which result in impractical accounting treatment related to the measurement. The presentation of Sovereign Sukuk is presented in the value of Government Securities (SBN) both short term and long term. The presentation is the same as the presentation of corporate Sukuk for the type of ijarah Sukuk. The regulations do not regulate the detailed disclosure of information that must be disclosed concerning Sovereign Sukuk so the disclosure of transaction information on Sovereign Sukuk is not as complete as corporate Sukuk. Therefore, to maintain the accountability of Sovereign Sukuk, it is necessary to have government accounting standards that specifically regulate it. It aims to increase public confidence to invest in Sovereign Sukuk.

ANALISA PERBANDINGAN APLIKASI AKAD SUKUK ANTARA ISTANBUL STOCK EXCHANGE DAN INDONESIA STOCK EXCHANGE

Indonesia as a Muslim-majority country desperately needs products that are suitable for Islamic investment products in various financial institutions including capital markets. Likewise, Turkey, a country that was once the center of Islamic power and the most influential in the Islamic world, strongly supports the application of Islamic values, including in the fields of finance and investment, including Islamic investment in the Islamic capital market. The application of Jurisprudence on bond products is needed so that it is farthest from the practice of prohibited practices in Islam. The application of this contract requires analysis and thinking. A comparison of the development of Sukuk in the two Muslim majority countries is very interesting to study. This research is qualitative, namely research to produce a description of a problem in the form of words related to understanding, understanding, and value values. In this qualitative research, the author will explain the differences and similarities of contracts that occur in Sukuk in Indonesia and Turkey and data that occur in the field that relates to concepts in Sukuk contracts in both countries, especially corporate Sukuk. The purpose of this study is to analyze differences in Sukuk practices that incorporate financing through the capital market so that it can be an input for authorities and the government to develop Sukuk markets in Indonesia by looking at the progress of contract agreements practiced in other countries, especially Turkey in this study.
 Keywords: ijarah sukuk, mudarabah sukuk, musukakah sukuk, sukuk murabahah, sukuk wakalah, corporate sukuk, sharia capital market

DOES ISLAMIC FINANCE FOLLOW FINANCIAL HIERARCHY? EVIDENCE FROM THE MALAYSIAN FIRMS

Focusing on the sukuk market in Malaysia from 2000–2017, this study estimates the degree of each sample issuer information asymmetry and investigates how it influences sukuk issuance and how it differs by sukuk type. First, we find that a cost-plus-sales-based Murabahah sukuk is available for all sukuk issuers, even though the degree of information asymmetry is high. Second, a lease-based Ijarah sukuk can be chosen by high information asymmetric firms only when the firm has qualified collateral assets. Third, only a low information asymmetric firm can choose a profit-and-loss sharing-based Musyarakah sukuk. Therefore, we conclude that sukuk issuance also follows a financial hierarchy in accordance with the agency costs of each financial methodology required when a specific sukuk is chosen.

DOES PROFITABILITY, FIRM SIZE, AND MACROECONOMIC VARIABLE AFFECT YIELD TO MATURITY OF CORPORATE SUKUK?

The purpose of of this research is to examine the influence of profitability, firm size, and macroeconomic variable on the yield to maturity of corporate sukuk. The yield to sukuk maturity that will be received by investors illustrates the level of investor profit but the yield level also describes the level of risk borne by investors. This research was conducted on all companies listed on the Indonesia Stock Exchange in the 2015-2018 period which issued sukuk ijarah and published its financial statements during the research period. The research samples is 54th ijarah sukuk This research was conducted using a quantitative approach with panel data. The data analysis technique used in this study is panel data regression with a fixed effect model. The results showed that profitability projected with Return on Asset did not affect the yield to maturity of sukuk ijarah, the size of the firm negatively affected the yield to maturity of sukuk ijarah, the BI-Rate variable had a positive and significant effect on yield to maturity of sukuk and inflation had a negative effect on yield of ijarah sukuk.

Thematic Review of Sukuk Ijarah Issued in Nigeria: An Opportunity for Economic Development

Ijarah Sukuk is becoming one of the most improved products in Islamic finance. It has become an alternative source of financing and liquidity for both private and public sectors. Also, it plays important role in development of the economy of Muslim and no-Muslim countries. The objective of this paper is to clarify the concept of Sukuk Ijarah and discuss its opportunity for economic development of the country. Also, the issues and challenges related to the implementation of Islamic finance particularly Sukuk by the Federal government of Nigeria (FGN) and also as an alternative to conventional bond. The paper adopts content analysis of relevant previous studies. Findings reveal the potential of Sukuk ijarah as an alternative for rapid economic growth and its functional role in attracting government and client to invest in it. Furthermore, the authors observe that misunderstanding among religious leaders is a major challenge to the growth of Islamic banks and implementation of Sukuk in Nigeria. It is recommended that workshops, seminars and conferences are to be organized by Islamic centres, financial institutions and academicians in Universities to spread knowledge and create awareness among Nigerians Muslims and non-Muslims about benefit and advantage of Islamic finance products and Sukuk in particular.

PENGARUH LEVERAGE, PROFITABILITAS, DAN KONDISI EKONOMI TERHADAP IMBAL HASIL SUKUK IJARAH KORPORASI PERIODE 2015-2018

This research intends to analyze the impact of the variables of Debt to Equity Ratio (DER), Return on Asset (ROA), inflation and interest rates on returns of corporate ijarah Sukuk during the period of 2015-2018. The data gathered for this research is from the Financial Statements derived from the official website of each Company, Statistical Bureau Agency (BPS), Indonesia Price Bond Agency (IPBA) and Bond Book published by Financial Services Authority (OJK). The method of analysis used is the panel data regression analysis. The sample collected purposive sampling method is 18 Sukuk which are from 4 Sukuk publishing companies. The best model to process the data is the Random Effect Model. The result of the study shows that all variables affect the Sukuk yields simultaneously; however, the DER variable has a significant positive effect on Sukuk yields partially. Meanwhile, the ROA variable and inflation are not significant negative and interest rates have a negative effect significant to Sukuk yields. Keywords: Debt to Equity Ratio (DER), Return on Assets (ROA), Inflation, Interest Rates, Sukuk Returns

Influence of Micro Economic and Macro Economic on Yield to Maturity of Ijarah Sukuk Corporation Year 2014-2017

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Issuers’ Insight for Identifying Choice of Sukuk Structuring

One of the common problems that occur in Indonesia concerning the issuance of Sukuk is the limited issuance of Sukuk by companies. There were only two types of Sukuk issuance issued by companies, namely Mudaraba Sukuk and Ijarah Sukuk, and based on the data of OJK Sukuk Statistics, as of 2017 the issuance of Ijarah Sukuk still dominates Sukuk issuance. We investigated to discover how issuers of Sharia bonds (Sukuk) choose between the issuance of Mudaraba Sukuk and Ijarah Sukuk structures, based on the determinant factors of company characteristics, variables related to Sharia, and type of company industry. The population in this study were companies that issue Mudaraba Sukuk and Ijarah Sukuk. The sampling technique used is purposive sampling. The selection of the research sample consists of 27 issuers that issued 59 Ijarah Sukuk and 31 Mudaraba Sukuk during the period of observation. By implementing a probit regression analysis, the results showed that leverage level, Sharia compliance, and financial industry type might all influence the choice of companies to issue Mudaraba Sukuk. JEL Classification : G12, G23, O16 DOI : https://doi.org/10.26905/jkdp.v22i4.2368

Impact of Time Value of Money Theory in Ijarah Sukuk Genuineness: the Case of Bahrain and Malaysia

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.

The mitigation of liquidity risk in Islamic banking operations

The purpose of this paper is to discuss the issues and challenges of liquidity risk management in Islamic banks. At the same time, the authors are going to identify the sources of liquidity risk in Islamic banks and the common instruments used to mitigate liquidity mismatches in both sides of their balance sheets. The study is a qualitative study that uses secondary sources of data to describe and analyze risk mitigation in the Islamic banking context. Data were collected from libraries by referring to books, journals from both online and offline sources. The research objectives were addressed by critically analysing various issues from both the Islamic principles and contemporary applications. The authors found that Islamic liquidity management is an important building block for stable and efficient banking. Even though there are several attempts, for example, i) organized tawarruq (commodity murabahah), ii) salam sukuk and iii) short-term ijarah sukuk, to find solutions to the incessant problems of liquidity faced by majority of Islamic banks, there are still several underlying problems such as i) in terms of deficiency in infrastructure especially in countries where Islamic finance is still at an early stage, ii) lack of hedging instruments and iii) Shariah restrictions on some instruments. Regulatory bodies should come up with more innovative practices of Islamic liquidity management to solve unresolved theoretical issues and also meeting market requirements for liquidity.

Why bond market couldn’t thrive in Pakistan

Fixed income market has recently emerged in Pakistan. Onward 1990, prolusion of government securities paved a way for corporates to come forward with their debt papers and long term yield curve came in to existence by introducing FIB’s in 1992 followed by issuance of first Term Finance Certificates (TFC) in 1995. The TFCs’ coupon rate exhibits a wide range of different fixed and floating coupons related to numerous interest rates containing the discount rate, the Karachi Inter-bank Offer Rate (KIBOR) and Pakistan Investment Bond (PIB) rates. The SBP launched electronic trading platform for fixed income securities on 11th January, 2010 with the intention of improving the functioning and profundity of primary and secondary markets of sovereign bonds. The data available reveals that through this platform, the cumulative trading of sovereign securities touched 66% of the overall trading volume till the end of 2010 relative to 58.0% in January, 2010. In its initial stage, the E-bond platform provided the complete trading of sovereign bonds like T-bills, PIBs and Ijarah Sukuk. The other type of fixed income securities like repo, FRAs and swaps facilitated in subsequent phases.

Pengaruh Penerbitan Sukuk Ijarah Terhadap Return On Assets, Return On Equity dan Earning Per Share Emiten di Bursa Efek Indonesia Tahun 2009-2013

Sukuk in Indonesia is growing rapidly with marked Corporate Sukuk issuance reached 65 Sukuk. Within this development also trigger the issuance of Ijarah Sukuk more in demand by the issuer as it is considered more prospective than the Mudharabah Sukuk.This study aimed to determine the issuance effect of Ijarah Sukuk on the financial performance issuer in the Indonesia Stock Exchange in 2009 to 2013. The independent variable in this study is Sukuk to Equity Ratio and the dependent variable in this study are Return on Assets, Return on Equity and Earnings per Share. The analysis technique used is a simple linear regression analysis OLS with 95% of confidence level.The results of this study show that Sukuk to Equity Ratio has significant effect on Return on Assets, but Sukuk to Equity Ratio has not significant effect on Return on Equity and Earnings per Share.

Islamic Bonds (Sukuk) in Malaysia

This article introduces the various types of sukuk that exist in the Malaysian secondary market. The Malaysian sukuk market was initially debt-based which attracted criticism from the Shariah scholars from the Gulf and Middle East. However, the Malaysian sukuk market made a turn towards equity and ijarah sukuk and ventured into “green sukuk” or socially responsible investment (SRI) sukuk. To facilitate the financing of sustainable and responsible investment initiatives, the Securities Commission of Malaysia (SC) has launched the Sustainable and Responsible Investment (SRI) sukuk Framework in 2014. The introduction of the SRI sukuk framework is seen to be in line with the rising trend of “green bonds” and “social impact bonds” that have been introduced globally to facilitate and promote sustainable and responsible investing. The writer has presented different examples from both regions to show that the gap has been bridged. However, despite this convergence the author recommends a revisit of the controversial debt-based instruments by Malaysian Shariah scholars.