Islamic Capital Markets 107
Types of sukuk
Allsukuksare not the same type; AAOIFI lays down 14 different types of
sukuk. The most popular structure is thesukuk al-ijara, based on an Islamic
leasing transaction as described further below.
A critical consideration for thesukukis that the issuer must invest the
proceeds in a Shari’a-compliant manner using one or more of the Shari’a
modes of financing. Some of the common forms ofsukuksare also described
below.
Sukuk al-ijara
Ijara(lease) is a contract according to which a party purchases and leases
out equipment required by the client for periodic rental payment. The
duration of the rental and the amount payable are agreed in advance, and
ownership of the assetremains with the lessor.
Sukuk al-ijarais securities representing the ownership of well-defined
existing and known assets, that are tied up to a lease contract. This means
thatsukuk al-ijaracan be traded in the market at a price determined by
market forces.
Steps involved in the structure:
(a) The obligator sells certain assets to the special purpose vehicle (SPV) at
an agreed pre-determined purchase price;
(b) The SPV raises financing by issuingsukukcertificates in an amount
equal to the purchase price and this is passed on to the obligator (as
seller);
(c) A lease agreement is signed between SPV and the obligator for a fixed
period of time, where the obligator leases back the assets as lessee;
(d) The SPV receives periodic rentals from the obligator. These are
distributed amongthe investors−thesukukholders; and
(e) At maturity, or on a dissolution event, the SPV sells the assets back to
the seller at a predetermined value. That value should be equal to any
amounts still owed under the terms of thesukuk al-ijara.
Other characteristics ofsukuk al-ijaraare as follows:
- The rentals can be re-priced using an agreed basis and hence provide a
variable return in line with changes in market rates. This allows for
issuance of a negotiable instrument that can be traded in the secondary
market;
- Although under Shari’a the lessor is responsible for the maintenance and
insurance, the costs can be structured into and recovered through the
periodic rental payments; and
- There is considerable flexibility in repayment of the principal amount of
