Capital Markets 187
to have high expectations and low risk. Anyone who purchases sukuk in the
secondary market replaces the seller in the pro rata ownership of the relevant
assets and all the rights and obligations of the original subscriber are passed
on to him/her. The price is subject to the market forces and depends on the
expected profi tability. However, there are certain limitations to the sale of
sukuk in the secondary market, which are discussed later in this chapter.
Step VI: At maturity, or on a dissolution event, the SPM starts winding
up by selling the assets back to the original seller/owner at a predetermined
price and then paying back to the certifi cate holders or investors. The price
is predetermined to protect against capital loss to investors. It is a common
practice that the sukuk contract embeds a put option for the holders by
which the issuer agrees to buy the asset back at a predetermined price, so
that at maturity the investors can sell the sukuk back to the issuer at the face
value. At the completion of the sukuk, the SPM is dissolved and it ceases to
exist since the purpose for which it was created has been achieved.
The above - mentioned process is a general process to issue sukuk, but
there are different variations depending on the type of contract used to cre-
ate the underlying asset. Due to the diversity of contracts that are available,
the Accounting and Auditing Organization of Islamic Financial Institutions
(AAOIFI) recognizes the following different types of sukuk:
- Certifi cates of ownership of leased assets (ijarah sukuk)
- Certifi cates of ownership of right to use: (i) of existing assets, (ii) of des-
cribed future assets, (iii) of services of specifi ed party, and (iv) of described
future services - Salam certifi cates
- Istisna’ certifi cates
- Murabahah certifi cates
- Musharakah certifi cates
- Mudarabah certifi cates
- Muzaraah (share - cropping) certifi cates
- Musaqah (irrigation) certifi cates
- Mugharasa (agricultural/seed planting) certifi cates
With the exception of salam, istisna’, and murabahah certifi cates (and
some particular cases of muzaraah and musaqah certifi cates when the cer-
tifi cate holder does not own the land) these are all Shari’ah - compatible for
trading in the secondary market. This restriction on tradability in the sec-
ondary market comes from a Shari’ah ruling by the Organization of Islamic
Countries (OIC) Fiqh council which states that “a bond or note can be sold
at a market price provided that the composition of the group of assets, rep-
resented by the bond, consists of a majority of physical assets and fi nancial
rights, as compared to a minority of cash and interpersonal debts.”
In other words, sukuk issued against a pool consisting of cash or debt -
like instruments cannot be traded in the secondary market. This restriction