110 Islamic Finance in Practice
period and an agreed profit-sharing ratio. The corporate (asmusharik)
contributes land or other physical assets to themusharaka;
(b) The SPV (asmusharik) contributes cash, that is thesukukissue proceeds
received from the investors to themusharaka;
(c) Themusharakaappoints the corporate as a managing partner to develop
the land (or other physical assets) with the cash injected into the
musharakawith a view to earning a return on the developed assets. In
return, the corporate will get a specified profit share. It is also usual to
provide an incentive to the managing partner should the returns exceed
a target return;
(d) Thesukukholders share of profits are distributed to them on periodic
basis; and
(e) The corporate irrevocably undertakes to buy at a pre-agreed price the
musharakashares of the SPV or the assets of the musharakaon
maturity. The arrangements could also provide for the corporate to
purchase the shares of the SPV on say semi-annual basis so that at the
end of the fixed period, the SPV would no longer have any shares in the
musharaka. This would provide for an amortizing sukuk issuance that
redeemed the sukuk certificate over a period of time.An example of sukuk al-musharakais as follows:
Emirates,Dubai’snationalairline,issueda$550millionsukuktransaction
for seven years. The deal was a structured on amusharakabasis. The
musharaka, or joint venture, was set up to develop a new engineering centre
and a new headquarters building on land situated near Dubai’s airport
which was ultimately leased to Emirates. Profit, in the form of lease returns,
generated from themusharakawere used to pay the periodic distribution
on the trust certificates. Emirates then purchased the leased assets on
maturity of the transaction.Sukuk al-istisna’a
Istisna’ais a contractual agreement for construction, manufacturing goods
and commodities, allowing cash payment by the financier in advance and
delivery of the subject asset at a future date. The goods or building are then
sold in a parallelistisna’ato the client, who on delivery pays the sale price
on a deferred basis. The suitability ofistisna’afor financial intermediation
is based on the permissibility for the contractor inistisna’ato enter into a
parallelistisna’acontract with a subcontractor. Thus, a financial institution
may undertake the construction of a facility for a deferred price, and sub
contracttheactualconstructiontoaspecializedfirm.Normallythecontractor
would be appointed as an agent to supervise the construction. Such
arrangements can be used for providing the facility of financing the
manufacture or construction of houses, plants, projects, and building of
bridges, roadsand highways.