108 Islamic Finance in Practice
the issuance used to purchase the assets. The amount could be amortized
with or without grace period and included in the periodic rentals or
replicate a bullet repayment on maturity date.An example of sukukal-ijarais as follows:
The Central bank of Bahrain issued a $250 millionsukukTrust Certificate
through BMA International Sukuk Company. The Kingdom of Bahrain,
acting through the ministry of finance and national economy (in such
capacity, the head lessor), leased by way of head lease for a term of 100 years
a certain land parcel to the issuer pursuant to theal-ijarahead lease
agreement, and (in such capacity, the sub-lessee), leased by way of sublease
from the issuer the land parcel on the terms set out in anal-ijarasub-lease
agreement for a period of five years. The sublease is subject to earlier
termination if the trust is dissolved early.Sukuk al-mudaraba
Mudarabameans an agreement between two parties according to which one
of the two parties provides the capital (capital provider) for the other
(mudarib) to work with on the condition that the profit is to be shared
between them according to a pre-agreed ratio. These types ofsukuks play a
vital role in the process of development financing, because these are related
to the profitability of the projects.
The issuer of these certificates is themudarib, the subscribers are the
capital providers, and thesukukproceeds are themudarabacapital. The
certificate holders own the assets of mudarabaand the agreed upon share
of the profits; losses, if any, are borne by capital providers only.
Mudaraba sukukgives its owner the right to receive his capital at the
time thesukukare surrendered, and an annual proportion of the profits as
agreed.Mudarabasukukneither yield interest nor entitle owners to make
claims for any definite annual interest. This shows thatmudaraba sukukis
like shares with regard to varying returns, which are accrued according to
the profits made by the project.
Mudarabasukukmust represent a common ownership and entitle their
holder to shares in a specific project for which thesukukhave been issued to
fund. Asukukholder is entitled to all rights, which have been determined
by Shari’a upon his proportionate ownership of the mudarabaassets.
Steps involved in the structure:(a) Thesukukissuer enters into amudarabaagreement with the project
manager (mudarib) for construction/commissioning of a project;
(b) The SPV issuessukukto raise funds, the proceeds of which are given to
themudarib;
(c) Themudaribundertakes the project and collects regularprofitpayments
from the activity for onward distribution to investors; and