Exigency for Sukuk Bonds Financing:

Issues and Discussions

Shamsher Mohamad Ramadili

Professor and Deputy Dean, graduate School of Management
University Putra Malaysia
Taufiq Hassan
Lecturer, Faculty of Economics and Management
University Putra Malaysia
Adesina-Uthman Ganiyah. A
PhD Student, Department of Accounting and management
Faculty of Economics and Management
University Putra Malaysia

Abstract

This paper is an attempt to examine a growing interest in Islamic financial instruments with a
special focus on Sukuk- the Islamic bond financing. It traces the history of Islamic Financial
system, the emergence and global explosion in Islamic banking and finance and the exigency
for Sukuk by different countries as an alternative to conventional bonds in diversifying risk
especially countries from the Middle East who are usually over-exposed to dollar assets.
Employing secondary data, this paper enunciate current and future challenges to Sukuk
issuers most importantly in the West. After the introduction, section one is dedicated to a
brief discussion on the history of Islamic Banking and Finance in the world in general and
Malaysia in particular. Section two x-tray the global explosion for Islamic financial
instrument as well as exigencies for Sukuk Bonds by different countries as an alternative to
conventional bonds in diversifying risk, further issues and discussion on the subject across
the globe were deeply delve into in section three. The article closes by enunciate current and
future challenges facing the issuers and holders of Sukuk bonds most importantly in the West;
especially in attaining the Maqasid Al-Shari’ah (the objectives of Shari‘ah) followed by
conclusion and recommendations in section four.
Key words: Sovereign Sukuk, Bonds, Shari‘ah, Islamic Financial System, ethical financing.
JEL Classification: G12, G32

Corresponding author email address: shamsher57@yahoo.com

Electronic copy available at: http://ssrn.com/abstract=1666103

 Exigency for Sukuk Bonds Financing: Issues and Discussions

Shamsher Mohamada , Taufiq Hassanb, and Adesina-Uthman Ganiyah. Ac

a
Deputy Dean, Graduate School of Management
Universiti Putra Malaysia
b
Department of Accounting and Finance
Universiti Putra Malaysia
c
PhD Student, dept. of accounting and finance
Universiti Putra Malaysia
Introduction
The pivot on which the Islamic financing is resting is no other than the Shari'ah of Allah, the
teaching of Allah based on the Holy Qur‘an and Sunnah or sayings and deeds of the Prophet
of Islam-Muhammad. In Islam, faith and work are inseparable, hence, wealth is considered
important and everyone is encouraged to strive for it and eat from their sweat. The Shari‘ah,
therefore, had laid down ways of earning and ways of disposing these earnings. The principle
of justice, transparency and common interest of the public had been put in place to curb
exploitation, deception and illegal acquisition of wealth and to promote flexibility in the
system. Terms and condition of the contract must be within the Shari‘ah legal framework
while honesty and good faith are the keywords. Meanwhile, the hallmark of a conventional
banking is interest; the rate of interest is usually predetermined and guaranteed depending
upon the time period. Customers‘ deposits with a conventional bank attract a fixed interest
rate while borrowers must also pay a fixed interest on their borrowings ditto for conventional
money and capital market institutions. Their profit depends a great deal on the margin
between the loan interest rate and saving interest rate for banks and on the interest rate for
other conventional institutions. This is the principle of conventional financial system. Loss
incurred by a borrower is bore only by him. Borrower needs to go extra mile to obtain
financial advice on his business for better performance. This has its implication on cost of
capital. This conventional principle is against the teachings of Islam. Islam prohibits Riba-
interest and permitted trade.

Moreover, Islam has provision for Muslims who are willing to direct their earnings into a
legitimate and profitable investment. This provision is embedded in the Islamic Financial
system, which operate mainly on profit sharing basis with an essential feature of interest free.
Human capital and financial capital are placed at par under the Islamic Financial system. A
borrower loses only his time and efforts invested in the venture while the supplier of funds
borne exclusively the financial loss. In addition, the creditor has a say on the use of his funds.
He has the right to restrict the use of his funds to some certain investment, hence reducing the
moral hazard in such transaction. In short, creditors are like shareholders, to share profit or
losses as dictated by the financial environment. This had led to attempt by Muslim countries
around the globe to re-introduce the Islamic Financial system. While some steak to pure
interest-free financial system, some on the other hand operate dual economy- using both
conventional and Islamic financing. These attempt are highly encouraging today when the
economies of most Muslim countries are fast disintegrating as a result of the fiat interest
based monetary system, following the economic measures caused by international debt crisis
sometimes called the Third World debt crisis due to IMF and the World Bank‘s lending to the
sovereign governments of some of these Less-Developed Countries (LDCs) more than they
should have Cheon and Bruce (2004). Ironically, the IMF Structural Adjustment Programme
for these countries was even predicated on the economic notion that the people of these
countries must experience pains and sufferings before they can enjoy economic buoyancy
which is contrary to sound economic and banking principles. The IMF has open up their
markets through the elimination of trade barriers but could not force rich countries of the

Electronic copy available at: http://ssrn.com/abstract=1666103

world to integrate their various national economies in such a manner that it can benefit the
Third world and other Less-Developed Countries1. The re-introduction however, as witness
series of development amongst which is the financial engineering and most especially the
surge for Sukuk bonds not only in the Muslim lands but with it tentacles spreads to the
Western boarders. Hence, an attempt is made here to review some works that are generally on
Sukuk, with section one dedicated to a brief discussion on the history of Islamic Banking and
Finance in the world in general and Malaysia in particular. Section two x-tray the global
explosion for Islamic financial instrument as well as exigencies for Sukuk Bonds by different
countries as an alternative to conventional bonds in diversifying risk especially countries
from the Middle East who are usually over-exposed to dollar assets; as well as countries from
the West, further issues and discussion on the subject across the globe were deeply delve into
in section three. The article closes by enunciate current and future challenges facing the
issuers and holders of Sukuk bonds most importantly in the West especially in attaining the
Maqasid Al-Shari’ah (the objectives of Shari‘ah) followed by conclusion and
recommendations which form the section four of the article.

Section 1
Brief History of Islamic Banking and Finance in the Muslim World
Ahmad El-Nagar‘s work (1983) is one of the earliest works on Islamic banks in which he
traces the long history of both conventional and Islamic banking and financial practices in the
Middle East. The work will be of utmost importance in understanding the Middle Eastern and
to some extent, Asian history of Islamic banking and Money markets. It shows that ever since
the debate about the applications of Islamic banking principles especially on the banning of
usury took off in Pakistan in the 1950‘s, banking practices in the Muslim world has never
been the same. Though the move to ban usury in the Pakistani 1956 constitution was not
successful, a small but determined segment of Muslims residing in the rural areas went ahead
to back a local Islamic bank which charged no interest on it‘s lending. This experiment was
however short-lived as the bank soon ran out of deposits and faced problems over the
recruitment of staff. Despite the collapse of the Pakistani novelty in the operation of Islamic
banking, it was later followed by another attempt in Egypt in 1963 at the behest of Ahmad El-
Nagar, who later rose to the position of the secretary-general of the Association of Islamic
Banks Wilson (1983).

Ahmad El-Nagar was encouraged by the success of the Islamic bank that he pioneered in
Egypt and he went ahead to widen the scope in 1972 by assisting in the establishment of the
Nasser Social Bank despite facing similar problems faced by the Pakistani experience. He
became the Deputy General Manager of the new bank which took over his old bank and with
initial financial take off grant of over $2 million from the Egyptian government. The new
bank operated with strict Islamic principles. All loans were available interest-free to only
bank depositors. Loan preferences were given to social and welfare purposes, such as housing
but not for speculative purposes such as estate acquisition for capital gains. Credit could also
not be re-deposited with other banks for interests. The bank at the same time operated in
other normal banking services from its Cairo head office. It engaged in various projects and
took equity shares in suitable ventures based on profit sharing. These activities built up the
investments of the banks and also made it o participate fully in the communal services.2

The successes of the Egyptian Nasser Social Bank attracted many Muslim countries
especially Saudi Arabia which served as catalyst in the formation of other Islamic banks in
and the Gulf countries though not in Saudi Arabia itself as it operated banking with restrained
interest. Dubai merchant community was the first to be attracted by this Islamic Banking

1
See Bose Mihir: Crash! A New Money Crash, 1989, from Cheon and Bruce (2004).
2
See Rodney 1983, pp. 77-78.
institution and thus the Dubai Islamic Bank, a modern and non-governmental Islamic banking
institution was established and commenced operations in September 1975. The bank was
assisted by a committee of religious advisers that is consulted on all bank issues and policies.
This was followed by the Kuwait Finance House in 1977 which functioned in the same way
as the Dubai Islamic Bank except that while in the first, the major investors were the Ministry
of Awqaf and Islamic Affairs and the Ministry of Justice and Finance, the Dubai merchants
were the major investors in the latter. In addition, two banks, the Faisal Islamic Banks of
Sudan and the Faisal Islamic Bank of Egypt founded in 1977 were inspired by Saudi Arabian
Prince Mohammad bin Faisal who played a leading role in their establishment.

Two years later, the Bahraini Islamic Bank took off in Manama in 1979 with Saudi Arabian
Prince Mohammad bin Faisal subscribing thirty-five percent of its capital. The Bahraini
Islamic Bank began to collaborate with other Islamic banks before it in investments,
receiving deposits in Bahrain and recycling a portion of these deposits in other Muslim
countries. It also joined the Bahraini financial markets while not taking part in foreign
exchange transactions. Thus the Bahraini Islamic Bank unlike the Jordan Islamic Bank is not
entirely domestically owned and this is largely reflected in its banking activities. It started
working right from inception in association with other members of the International
Association of Islamic Banks under the chairmanship of Saudi Arabian Prince Mohammad
bin Faisal and the secretary generalship of Professor Ahmed El-Nagar mentioned earlier who
pioneered Islamic banking in Egypt.3 The Bahraini Islamic Bank is today the leader in
offshore Islamic banking as it has the highest conglomeration of offshore Islamic financial
institutions The Banker (1998). Though, the Asian-Pacific region is the birth place of Islamic
banking practices, it has not played a leading role in its development until the debut of
Islamic bank in Malaysia in 1983.

After the pioneering Pakistani fiasco at establishing the Islamic bank, other Asian countries
including those with Muslim minorities took up the challenge. According to Mastura (1988),
one of such country is Philippine where the Philippine Amanah operates two windows for
banking transactions. The Philippine government in a presidential decree established the
Philippine Amanah Bank (PAB) in 1973. Hence, the bank offers Islamic modes of financing
together with the conventional interest-banking system4. The Pakistani military government
of Zia ul-Haq also decreed in 1979 a progressive Islamization of all Pakistani financial
institutions such that interest faded out from all domestic banking operations in 1985. This
Islamization is a major distinctive feature of the Pakistani banking and financial institutions
like Iran and Sudan that sets them apart from the Islamic financial institutions in Malaysia
Anwar (1992). Yet despite the pioneering case of Pakistan, the main component of Islamic
banking, Profit and Loss-Sharing (PLS) was basically shunned and ninety percent of the
Islamic banks‘ transactions were based on marked-up schemes Fuad and Muhammad (1996).

In Malaysia, the Islamic financial institution preceded the Islamic bank. With the formation
of the Muslim Pilgrims Savings Corporation in 1963 to help intending pilgrims to perform
Hajj, an Islamic financial institution invariably emerged from the corporation which was later
renamed the Tabung Hajj (the Pilgrims Management and Fund Board). It help the intending
pilgrims to invest their Hajj savings in Shari‗ah compliant businesses. It was therefore the
success of the Tabung Hajj that finally led to the formation of the Bank Islam Malaysia
which provided 12.5% of the bank‘s take-off capital. Malaysia like Bahrain today implements
parallel Islamic and conventional banking systems; . Malaysia has always been at the fore
front of innovation of Islamic Finance at least ten years ahead of Bahrain, the United Arab

3
Ibid, pp. 80-86.
4
Adesina (2006) Islamic Banking System: The Malaysia Example
Emirate etc. Very early on, Malaysia developed an interbank money market for Islamic bonds
certified by the powers that be El-Gamal (2003). And the size of the Malaysian economy is a
huge attraction Malaysia has given many privileges to Islamic banks as a deliberate design to
make Islamic banking a key part of the country‘s modernization and developments drive
Wilson (1995).

In November 2001, an agreement was signed by the Governors of Central banks and
Monetary agency of Bahrain, Malaysia, Indonesia, Sudan and the President of the Saudi-
based Islamic Development Bank (IDB) to create the International Islamic Financial Market
(IIFM) with the main aim of facilitate international secondary market for trading of Islamic
financial instruments which different interpretation of Shari‘ah on them had be harmonized
by the IIFM Shari‘ah Supervisory Committee consisting of representatives of member states
who are Scholars from different regions‘ Shari‘ah school of thought. This had greatly
enhanced cross-border acceptance of Islamic financial instruments and had been
strengthening cooperation among Muslim countries. It is therefore in order to meet the
varying demands of investors in a fast changing market environment that IIFM is addressing
the critical need for liquidity management among Islamic financial institutions Abdul Rais
(2003). Ijlal (2006) traced the evolution and natural progression of the Islamic financial
Institutions which in the 1970‘s witnessed commercial banking operations only in the Islamic
finance industry with an addition of project finance and syndications in 1980‘s. 1990‘s
welcome the addition of equity and leasing (Ijarah). However in the 2000‘s, Sukuk and
structured alternative assets surfaced in the Islamic Finance industry and its capital market.
From 2005 till date, Islamic financial engineering and innovation in order to develop more
sophisticate instrument for liquidity management as been in the top gear in this nascent but
fast growing industry.

Section 2
Global Explosion of the Islamic Financial System
According to Islamic Financial Service Sector report of December 2007, the Islamic
Financial service industry is expanding it tentacles outside the GCC and Malaysia to
countries like Jordan, Lebanon, Syria, United Kingdom, Canada, Germany etc and other
countries that have interest in Islamic finance. The growth of the industry estimated at 12-15
% (a growth rate faster than the conventional one) has attracted international investors into
the industry. The Islamic Financial System refer to a system that carried out funds
mobilization from surplus spending unit to deficit spending unit in a way that does not
conflict with Shari'ah principles. It is an interest free system which prevents transaction in
prohibited activities such as gambling, Riba and transactions that involve uncertainty and
ambiguity. A financial system without interest is most interesting; because it would prevent
future Enrons and Argentinas. The conventional system had created a consumerism society
that encourages "buy today, pay tomorrow', making poor countries to be indebted to rich
nations. The Muslim world had quietly embarked on a very different sort of jihad: building a
financial system where interest – a phenomenon as old as money itself – do not exist Jerry
(2002). Though, it had being in existence 1,427 ago establish by Muhammad (SAW) based
on Divine revelation, the Islamic Financial system received serious attention from Muslim
nations and non-Muslim nation alike most especially in the last one decade. The longest verse
in the Qur'an – 2 verse 282 discuss the financial system in Islam ranging from documentation
of contract of debt, the need for a witnesses in financial transactions, fear of Allah (SW) by
the debtor; fulfillment of obligations; encouragement on spot commercial transactions to
advice for the witnesses to fear Allah and avoid causing harm to any of the party in the
contract.

Hence, it will not be unreasonable to conclude that Islamic banking and finance is based on a
just and stable principles to encourage mutual dealing, promote love and caring, and
discourages socio-economic problem in a community. The dollar, which became the
international currency in the international market after the of the Breton Wood system has
been in a secular downtrend in recent years in the global foreign exchange, the recent bout of
risk aversion provided it a boost as USD-based investors brought money back home from
overseas markets. Since Sep 18, however, the dollar has resumed weakening primarily due to
worsening growth and interest rate differentials, and USD-based investors venturing overseas
again Shankar (2007). Going forward, emerging Asia is set to be a favored destination of
global capital seeking excess returns. These must have accounted for the reason why United
States and International financial institutions are now flocking Dubai to explore new
opportunities in Islamic banking amid growing confidence in the Gulf city's Western style
legal framework. As at last count, almost global banks have set up offices in the City's
futuristic new financial district since it began issuing commercial license in 2004. Among
them are some of the worlds biggest: Morgan Stanley, Merrill Lynch, credit Suisse and
deutsche Bank. Several more, including HSBC, Goldman Sachs, Lehman Brothers and
Japan's Sumitomo Mitsui have announced plans to open offices in the 110 acre district.5

Citigroup which began it operation in 1981 in London was the first international institution to
set up a separately capitalized Islamic Bank in 1996 christened Citi Islamic Investment Bank
(CIIB). CIIB‘s core business has been the origination, structuring and distribution of Islamic
banking transactions in structured trade finance, leasing, project financing, advisory services
and Islamic securities.6 Dow Jones Index in collaboration with Citigroup corporate and
Investment banking had shown there interest in Sukuk as an international Islamic financial
instrument by launching Done Jones Citigroup Sukuk Index in March 2006, the first index
that seeks to measure the performance of global bonds complying with Islamic investment
guidelines Hettish (2007).These two leading global index provider at launch; track seven
issues which includes: Islamic Development Bank, Solidarity Trust Services Ltd, BMA
International Sukuk, Qatar Global Sukuk, Malaysia Global Sukuk, Sarawak Sukuk and Dubai
Global Sukuk. This was coupled with the application of market based criteria such as
minimum maturity of one year, minimum issue size of US$250 million, and an explicit or
implicit rating of at least BBB-/Baa3 by leading rating agencies. Chief Executive Officer
(CEO) of Citi Islamic Bank reiterated that this move is in line with their strategy to provide
Islamic issuers and investors world-class and innovative products that contribute to
expanding the frontiers of Islamic capital markets.7 The index is applicable to Islamic bonds
that complies with Shari‘ah principle as well as the standard set by Auditing and Accounting
Organization of Islamic Financial Institutions (AAOIFI) for tradable Sukuk. Companies that
engage in the following lines of business are excluded: alcohol, tobacco, pork-related
products, financial services, defense/weapons and entertainment and companies that fail the
following Financial Ratios are also excluded:

 Total debt divided by trailing 12-month average market capitalization is 33% or more.
 Cash plus interest-bearing securities divided by trailing 12-month average market
capitalization is 33% or more.
 Accounts receivables divided by 12-month average market capitalization is 33% or
more.8

Muslims worldwide who are involve in corporate and other business activities; are having a
growing awareness to invest in accordance with Islamic principles. This had helped the

5
"Global banks storm Dubai Financial District", The Punch, August 24, 2007, p. 31
6
―First Sukuk Bond Index Launched‖ www.onshore2offshore.com/news/First+Sukuk+Bond+Index
7
―First Islamic Bond Index to set Global Industry Standard‖ www.ameinfo.com, Press release, United Arab
Emirate, Tuesday March 21th, 2006, accessed March 17th, 2008.
8
www.djindex.com accessed March 17th, 2008
Islamic financial market growth. Coupled with the above fact is that there is increasing
wealth in the hand of Muslims with the Muslim population of the world today estimated at
about 1.6 billion, hence, there is a great deal of surplus cash in Islamic institutions waiting to
be tapped by new financial instrument. Sukuk can allow this pot of gold to be unlocked.9
There are about 524 Islamic financial institutions currently operating in about 75 countries
worldwide, with more than 100 Islamic equity funds managing assets in excess of US$5.0
billion. Latent Islamic funds in global financial institutions is said to be at US$1.3 trillion
while the Islamic financial market is estimated to be US$230 billion in size, with an annual
growth rate of 12% to 15%.10 According to a research conducted by The Bankers in 2007 on
Top 500 Islamic financial institutions, the geographical distributions of countries with Islamic
financial institution that are reporting Shari‘ah Complaint Assets (SCA) are presented in table
1, figure 2, 3 and 4 (refer to the appendix). These institutions were spread among 47 countries
across the global and were divided into three core geographic areas, the six Gulf Cooperation
Council (GCC) states, the non-GCC states of the Middle East and North Africa (MENA) and
the remaining non-MENA states across the globe.

The surge for Sukuk will assist in deepening the Islamic financial market as well as increase
the market liquidity channeling excess idle cash in the Muslim world to where they are most
needed for development with a good return on investment. Facts from Dow Jones Citigroup
Sukuk index as at July 31st, 2007 revealed some information about some Sukuk and their
index performance. The table 2 (In the appendix) presents some Sukuk, with their ratings;
coupon; issuers; amount and maturity.

Section 3
3.1 Sukuk bonds: Further Issues and Discussions

The Accounting and Auditing Organization for Islamic Financial Institutions ("AAOIFI") -
the regulatory and accounting standards body for Islamic finance - defines Sukuk as being:

"Certificates of equal value representing after closing subscription, receipt of the

value of the certificates and putting it to use as planned, common title to shares and
rights in tangible assets, usufructs and services, or equity of a given project or equity
of a special investment activity".

Sukuk is a document or certificate, which evidences the undivided pro-rata ownership of

underlying assets — the Sak (singular of Sukuk) is freely tradable at par, premium or
discount.11 An Islamic bond - which is structured by bundling leasing transactions but
behaves in practice like any highly-rated bond - is the short answer.12 Sukuk has today
become most popular Islamic financial instrument for raising fund locally and at the
international market. The diversify quality of this instrument has given it an edge over the
conventional bonds. Because it can be applied using the various methods of Islamic financing
such as Ijarah, Murabahah, Mudarabah, Istisna, Salam, Musharaka inter alia. For instance
Malaysia applied the principle of Ijarah in her 2002 debut Sukuk, The Dubai Port, Customs
and Free Zone Corporation (PCFC) Sukuk also known as ―Thunder Sukuk‖, applied

9
www.ameinfo.com
10
Bursa Malaysia, 'The Islamic Capital Market', icm@bursamalaysia.com accessed January 27th, 2008
11
See Hettish (2007)
12
―Islamic Bonds Now A Big Issue‖, AME info on Middle East and Economy, Thursday January 24, 2008,
www.ameinfo.com/82357.html, Accessed January, 31st, 2008.
Musharaka while the conventional bonds are confined to the old structure of loan and
interest.13
This edge of Sukuk over the conventional one seems to be gradually hedging out the good-old
interest bearing conventional bonds, at least in the Islamic world to start with. The use of
Sukuk in the world of Islamic finance has become increasingly popular in the last few years,
both because they provide the means to raise government finance through sovereign issues,
and as a way of companies obtaining funding through the offer of corporate Sukuk Benjamin
(2007).
What is Sukuk doing right? Some features of Sukuk which has made it attractive to investors
could be identified as follows:

 It is asset-back securitization that is, their must be an underline asset or Special

Purpose Vehicle (SPV).
 It pools investors‘ resources together to satisfy their yeaning for profit while
satisfying the financial needs of the issue.
 Sukuks bring a new source of funds, generally at attractive rates
 They are vital to developing deeper and more liquid Islamic capital markets14
 Sukuk are based on an investment process which involves investors mixing their funds
with other investors‘ funds in order to make profits.
 They are a tradable Shariah-compliant capital market product providing medium to
long-term fixed or variable rates of return.
 They are assessed and rated by international rating agencies.
 They provide regular periodic income streams during the investment period with easy
and efficient settlement and a possibility of capital appreciation Benjamin (2007).

Sukuk is not simply a claim to cash flow but an ownership claim. It‘s comparable to the
conventional financial system bonds issued, in relation to a securitization. It confers a
beneficial interest to the holder in terms of holding a proportional ownership of the
underlying asset as well as the income that it generates. The Sukuk holder also assumes all
rights and obligations for the maintenance of the asset.15

3.2 Different Types of Sukuk

The flexibility of this most populous Islamic financial instrument can not be over emphasis.
Different Islamic principles have been applied to issuance of Sukuk to suit the issuer and the
investors based on the Islamic Shari‘ah principle that encourages ethical transactions,
financing and investment for people that stands for justice and equitable wealth distribution
without taken undue advantage on each other in transactions. The quest for diversifying
portfolios by investors; Muslims and non-Muslims alike to minimize risk has contributed to
the surge for Islamic finance which provides them new asset classes, new instruments and
new products with low correlation and established asset classes or products. Islamic financial
products cater to this particular need and are, therefore, drawing increased attention of that
investor group and the global financial communities Ishrat (2006). Ijarah Sukuk seems the
most popular because it has been widely accepted by Islamic Scholars both in the Middle-
East and Asia. It can be traded at par, below or above the face value because it is not a debt.
Debt trading is allowed in Islam only if traded at par or at discount value. Listed in table 3
below are some differences between Sukuk Bonds and the Conventional Bonds. It will not be
unreasonable to say that these differences are what have given Sukuk a hedge over its
conventional counterpart; making it an attractive financial instrument to Muslim and Non-

13
Introduction to Sukuk: Really most Versatile Bond‖, Gulf News via Thomson Dialog NewsEgde,
www.tmcn.com March 2006,
14
ibid
15
ibid
Muslims, governments, and corporate organizations. The British Bank says that their market
insiders‘ estimates indicate that the value of average daily Sukuk trades range from $80 -
$100 million.16 Furthermore, Malaysia was the first country to issue Ijarah Sukuk globally
followed by other countries like Qatar, Bahrain and Pakistan to mention but a few. A
different type of Sukuk includes, Murabahah, Mudarabah, Musharakah, Ijarah, Salam,
Istisna’a, Bai Bithaman Al-ajil, and Al-Wakala Sukuk. We shall briefly describe some of
these Sukuk and their applications especially the most populous ones.
Murabahah Sukuk: Al-Murabahah could be defined as a sales and purchase transaction
wherein the owner of the goods i. e the seller must disclose to the prospective buyer the cost
price of the item and the mark-up. It is use in financing assets or projects which does not
involve profit/loss sharing. For instance, if a buyer wants to buy an asset such as car,
equipment, house etc, once he identified the item, the SPV shall negotiate with the seller on
the price and other necessary things based on the promised of the buyer to buy. The SPV will
sell Sukuk issued by the buyer (the project company) to investors to raise the needed funds to
purchase the asset and must take possession of item, agreed on type of repayment either on
short or long term bases before delivering it to the buyer, meanwhile, the price and the mark-
up must be agreed upon by the parties in transaction. When the settlement is on deferred long
term basis, the contract is referred to as Bai Bithaman Ajil contract. Murabahah certificates
are issued by the issuer to investors as evidence of indebtedness through the SPV. Figure 4
present the illustration on Murabahah Sukuk.

Bai Bithaman Ajil (BBA): Long term Murabaha is referred to as BBA, the contract of sales
and purchase with deferred payment on a long term basis where the SPV serves as
intermediary between the issuer and the investors. It involves sales of an asset with cost price
and profit margin to the issuer of the Sukuk after the investors has paid for the issuance
through the SPV. There is usually install mental repayment by the issuer to the investors at
agreed rates and maturity of the contract. Illustration on this type of Sukuk is presented in
figure 5.
Mudarabah: This is a akin to trust financing where a party –the Mudarib that is the issuing
company acts as agent to the provider of the capital (the Investors in Sukuk) in terms of
management and in turn shall be rewarded based on the agreed profit and loss sharing ratio.
The investors are expected to pay up for their full interest in the issue to create a common
ownership upon which a certificates or Sukuk shall be issued to them; this form of contract
can be likened again to limited partnership. 51% or more of the invested capital must have
been engage in tangible physical assets before the Sukuk can be traded in the secondary
market at any price otherwise it must be sold at par in case the invested capital is still in the
form of money or debt to avoid Riba in the transaction Zainal Azam (2008). Refer to figure 6
in the appendix for further illustrations.
Musharakah: In this type of contract, the issuer and the investors are both capital providers
with the issuer (or the arranger or special purpose vehicle) selling a portion of their
ownership interest holding to the investors. Investors are rewarded based on their percentage
interest holding from the generated income by the investment; redemption is usually at the
maturity of the Sukuk otherwise, the issuer can repurchase the assets at maturity.
Ijarah Sukuk: A contract under which the SPV finances the purchase of an equipment,
building or other facilities for the clients against agreed rentals or together with an undertaken
from the customer to make additional payments which will permit the client to purchase the
asset in question. It is a leasing agreement between the issuer and the investors with the
arranger or the SPV selling the asset needed by the project company to the investors by
issuing Sukuk bonds; Sukuk certificate shall be issued by the project company to the investors
upon receipt of the proceeds from the SPV. The investors then lease the assets to Project

16
Growth of the Sukuk in GCC Market, Eqtisadiah Saudi Arabia, Arabic article, excerpt translated by staff of
www.memrieconomicblog.org
Company who is expected in return to pay installment rentals to the investors on a monthly or
quarterly basis as agreed upon in the terms of the contract and redeem the Sukuk. Ownership
at maturity of the asset depends upon the agreement as well; the rentals may sometimes form
install mental payment for the price of the asset with ownership reverting back to issuer at
completion of the payment or the issuers may be given the option to buy the asset at maturity
of the Sukuk contract. Please refer to figure 7 for further illustrations.
Bay’ al-inah (buy back sales)
This is sale transactions which involves the sale and buy back of an asset by the seller in this
case the investors (or Special purpose vehicle SPV). The investor will sell the asset to the
buyer that is the issuer of Sukuk on a deferred basis and later buy back the same asset on a
cash basis at a price which is lower than the original selling price. This contract combined
two sales in one contract: Cash sales (al-bay’ al mutlak) and deferred sale (al-Bai-Bithaman
Ajil otherwise known as BBA). Either contract can come first, for instance, in the diagram
below, BBA comes first. This type of contract is unacceptable in the Middle-East and
unacceptable in Islam as one can see that the intention of the transaction is doubtful. The
BBA contract must be higher in price than the cash sale contract therefore, if the bank sell to
the customer at #15,000 and agreed that the customer pays back over a period of 5 years that
translate to #250 per month. And again ask the customer to sell the same asset back to the
bank at a price lower than the cost in the first contract that is #10,000 so that he (the
customer) will get a payment in cash of #10,000. It implies that the first contract has given
the bank a 10% profit of #5,000 on a #10,000 financing to the customer. It should be noted
that this is acceptable as long as the bank is engage in contract of sales Mohd Azmi (2005).
However, the combination of the cash sale wherein the customer get #10,000 cash as he sell
back the above contract to the bank implies that the customer needed cash – he get it- and the
bank has loan the amount with increment on the loan. Both parties get what they desired,
while the asset took a fictitious character. It is not utilized in the same way that a genuine
buyer would use it Saiful and Sanusi (2001), this type of contract is acceptable in the
Malaysia context. Figure 8 x-tray application of Bay’al-inal in Sukuk contract.

Section 4
4.1 Global overview of Debut Sovereign, Traditional and Corporate Sukuk Issues
Activities in the global Sukuk market started in 2000 when three different corporate Sukuk
issues worth US$336m were issued. Later on Malaysia played a pivotal role in the
development of the Sukuk market, both in the Ringgit and foreign currency denominated
Sukuk. The Malaysian Global Sukuk issued in 2002; the first global sovereign Sukuk issued in
the international bond market; set a precedent for the development of global Islamic products
with countries such as Qatar, Pakistan and Bahrain launching their respective global Sukuk
soon after. ABN Amro, Barclays, Society Generale, Deutsche Bank and UBS - underwrote
nearly 190 issues, raising more than $27bn Erik (2007). A leading global index provider,
Dow Jones Index launched Dow Jones Islamic Market Malaysia Titans 25 Index January 20,
2008. The index which measures the performance of the top 25 stocks in the Dow Jones
Islamic Market Malaysia Index comprised of Malaysia-domiciled companies that pass rules-
based screens for Shari'ah compliance.17 Calculated in U.S. Dollar (USD) and Malaysian
Ringgit (MYR), indexes are weighed based on float-adjusted market capitalization and a base
value set at 1000.
Malaysian Sukuk
Malaysia as always been in the forefront of Islamic Finance innovation and engineering such
that her first sovereign Sukuk issued in June 2002 mark the beginning of a rebirth of this
instrument in the international market place. Efforts have not only been made to attract
institutional investors both local and international but also in the area of setting standard and

17
Dow Jones Indexes Launches Dow Jones Islamic Market Malaysia Index, PrimeNewswire, New York
,Jan,20, 2008
regulatory framework for the entire Shari‘ah compliance instruments. The largest corporate
Sukuk deal in Sukuk market in the Southeast Asian was closed in January, 2008 with the
issuance of $450 million Sukuk by Binariang Sdn Berhad, a holding company of Maxis to
Saudi Telecom Co (STC), the deal is managed by AlRajhi, Malaysia Faisal (2008).
Figure 9 below shows the distribution of investors by continent that partook in the 2002 issue
of Malaysia Sukuk, about 27 investors partook in the first global Sukuk endorsed by the IIFM
which was issued by Malaysia. This deal achieved many milestones with 51% of the
investors from the Middle East, followed by 30% to Asia investors with half of this placed to
Labuan investors.15% was taken by European investors and 4% by US investors Abdul Rais
(2003).18 For diagrammatical presentation of Investors by continent in Malaysian Sukuk
2002, please refer to figure 9.
Pakistan Sukuk
Pakistan Sukuk issued in 2005 also was widely accepted by Islamic investors. Investors from
Saudi Arabia, Gulf and the Middle East lapped up 47 per cent of bonds. Asia picked up 31
per cent, followed by Europe 22 percent. Government of Pakistani officials undertook pre-
launch road shows in Saudi Arabia, Dubai, Bahrain, Kuwait, Switzerland, Singapore, and
Hong Kong - offering the Islamic bonds.19 Pakistani Prime Minister said 2005 Sukuk
issuance is a way of moving away from the International Monetary Funds financing to the
International bond and money market financing. The Sukuk was priced at 220 basic points
over the six-month London Inter Bank Offer Rates (LIBOR); the initial price guidance was
220-235 basic point above LIBOR. This Sukuk was considered to be better than the costly
Eurobond issued in 2004 that was marked with domestic criticism. Figure 10 present
diagrammatical presentation of Investors by continent in Pakistani Sukuk 2005. Going by
categorization of clients, 24.5% of the Sukuk was bought by state and government agencies,
23.45% went to the Asset managers, 20.3% to Islamic Banks, other banks 18.3 per cent,
private banks 10.7 per cent, corporate organization, 2.0 per cent, and insurance companies,
0.8 per cent.20 Figure 11 dough nut present this diagrammatically.
Qatar
Qatar has issued its debut Sukuk and raised a bigger than expected $700 million, the plan
issue of $1 billion Sukuk to finance investment in renewable energy by mid 2008 was
postponed to next year due to global credit crunch and lack of appetite by investors in dollar
based investments21
Bahrain
Bahrain was the first sovereign to develop and issue Sukuk and has so far past the $1 billion
mark in Sukuk issues. Bahrain Central bank has since 2001, issued 14 Sukuk Ijarah worth
$2.05 billion with $1.27 billion Sukuk outstanding as at last count in 2008. An Islamic Sukuk
liquidity instrument has been developed by Central Bank of Bahrain and the Bahrain
Liquidity Management Centre to provide more liquidity into the Sukuk market for both
Islamic and conventional institutions22; this shall further deepen the Sukuk market. It is also
expected to promote efficient pricing mechanism, provide fair prices to Sukuk investors and
enhance efficient primary and secondary trading on Sukuk Jamelah (2008). This country
issues about 24 Sukuk in a year including the Sukuk Ijarah and short term Sukuk Al-Salam
Ijlal (2006).
Emirate
Emirate debut Islamic Sukuk issue 2005 the first-ever Islamic 'Sukuk' issue by an airline and
the first Sukuk with a term of seven years received subscriptions of $824 million surpassing
an initial target of $550 million by nearly 50 percent and attracted wide investor participation
from Europe as well as the Far East. The money raised from the bond was used to finance the
18
Abdul Rais Abdul Majid is the CEO of IIFM.
19
―Record‘Sukuk‘-Islamic Bond Offering-by Pakistan‖, Khaleej Times online, January 26th, 2005
20
ibid
21
IIFF Newsletter June 2008.
22
ibid
new Emirates Engineering Center in Dubai. This is, with the principal proceeds being paid on
maturity. This Sukuk bond receives top honors at Airfinance Journal's 7th annual Deal of the
Year awards.23 The world‘s largest Sukuk bond was issued in November 2006 by the Nakheel
Group; the Dubai property developer amounted to $3.52 billion.24 With the Aldar Properties
issued of $2.5 billion Sukuk on the London Stock Exchange and the Dubai Islamic Bank
bond, though, yet to be priced but will be of benchmark size, suggesting more than $1 billion,
the amount of outstanding Sukuk in the world will be driven up to $70 billion mark. Dubai
Metals and Commodities Center; issued a gold-linked bond; allowed investors to receive
payment in gold bullion or US dollars.25
U.S
The first Islamic bond using hydrocarbon reserves as an asset class was issued by United
State in collaboration with East Cameron Gas Company's Sukuk of US$165.7m, that was the
first time the U.S enter the Sukuk market.

Saudi Arabia
Longest dated Islamic bond in history was issued by Saudi Basic Industries Corporation,
Saudi Arabia's first Islamic bond with a maturity date of 20 years.26

According to Islamic Finance Summit report 2006, global Sukuk market was expected to be
$24.251 billion at the end of 2006. Meanwhile, in a recent data on Sukuk from Dialogic
Database adopted from MIF Monthly, the actual global Sukuk at the end 2006 was $15.8
billion and $36.4 billion as at the end of 2007 (refer to table 4 and 5). Malaysia was and is
still the leading country in term of number of issuance as well as in term of amount in U.S.
dollars. Though, there was reduction in the number issued in 2007 when compared to 2006
figure yet, there was an increase in the value issued. In the overall, 2007 figures in table 5
showed the exigency for Sukuk bonds, almost all the countries increased the amount issued in
Million U.S. dollar by 100 percent. Furthermore, there was an astonishing increase in the
issuance from Saudi Arabia, Kuwait, Pakistan and Indonesia. Therefore, it may not be wrong
to conclude that the souk for Sukuk in these countries is increasing rapidly compare to
Malaysian market. Information in table 4 and 5 about global Sukuk issuances by year and by
country, full year 2006, 2007 was diagrammatically represented in figures 12 and 13.

4.2 CHALLENGES
There is no gain saying that Sukuk as come to stay as an instrument for tapping capital from
the international financial market. ―To illustrate the rapid growth of the Islamic finance
industry, the Bahrain-based Liquidity Management Centre, had estimated the size of the
Sukuk market alone to be worth US$ 18 billion by the first quarter of 2006.‖ This was the
statement of Andrew Jackson at the12th International Islamic Finance Forum (IIFF), which
took place at the Jumeirah Beach Hotel, Dubai on 2-5 April 2007.27 At the Cityscape property
conference in Dubai held in January, 2008, Emirates Financial Services Managing Director
Suresh Kumar made a passionate call for the development of a regional corporate bond
market to strengthen capital markets and build stability into the system. Sukuk are a valuable
part of this vision. 28 Hence, there is the need to create a trading floor for Sukuk Bond issued

23
Emirates Airline Debut Islamic Sukuk Bond receive Top Honors at Airfinance Journal‘s 7 th Annual Deal of
the Year Award, United Arab Emirate News online, April 5,2006 13:08
24
See Erik Uhlfelder (2007)
25
www.bfinance.co.uk
26
ibid
27
19th Feb, 2007, http://www.iirme.com/news_details.aspx?newsID=185
28
―Islamic Bonds Now a Big Issue‖, AME info fn Middle East and Economy, Thursday January 24, 2008,
www.ameinfo.com.
internationally and domestically. Out of 524 Islamic Financial institutions that were engage
in Shari‘ah Compliant Activities, The Banker found out that only 60% are reporting financial
activities. That 40% is not reporting indicates the need for increase in transparency by Islamic
Financial institutions. In addition, 42% out of this 60% are reporting Shari‘ah Compliant
Assets and activities. That is 58% of the Islamic Financial Institutions in the sample are not
reporting on SCA, this is also adding to confusion on the part of customers who cannot
readily assess whether their bank‘s activities are 100% halal (permissible) Steven and Joe
(2007). Please, refer to figure 14 for the pie of reporting by Islamic Financial Institutions
based on Shari‘ah Compliance Activities. This has posed another challenge to AAOIFI in
form of ensuring standardization and proper accounting records and disclosure among the
Islamic Financial Institutions and any issuer of Sukuk. Though, the AAOIFI has issued
standards for 14 different types of Sukuk, where some of these Sukuk are classified as
tradable and others are classified as non-tradable based on the type and characteristics of the
issued Sukuk but with the new surge in Sukuk market locally and internationally, improved
standard, regulations, disclosure policies and effective monitoring to ensure compliance is a
desideratum.

In the West, for instance in U.K, a new law had been pass to treat Sukuk bonds like any other
conventional bonds with the aim of preparing a level playing ground for investors in both
methods of financing. The U.K Financial Act 2007 does not contain the word Sukuk but make
provision for what is called ―Alternative Financing Investment Bonds‖ (AFIB). AFIB is
treated as debt to the issuer while the issuer is treated like a financial institutions, hence all
the tax rules for corporate debts applies to Sukuk. Its Income Tax Act 2007 section 1005
provides the details definition of what a recognized stock exchange is and the recognized
ones under which AFIB must be listed for it to be acceptable in the U.K. Also tax arises for
SPV in the U.K under U.K tax law Amin (2008).At this juncture, it is worth to note that due
care must be exercise in regulating Islamic Financial institutions and instrument in order to
achieve the purpose and objective (Maqaasid Shari’ah) of Shari‘ah. Moreover, the
relationship between God (Allah) and man (His creatures) is guided by set of rules and laws
set out in the revealed book. These rules and law are called Shari'ah which means "the path".
Also, Islam says there is no dichotomy between your mundane and religious life because
Islam is a complete way of life which encompasses economics, politics, ethics, social, moral
etc. Imam Al Ghazali stated that the very objective of Shari'ah is to promote the welfare of
the people which also encompasses safeguarding of faith, life, intellect, prosperity and wealth
Kameel (2005). He further argued that in attaining the objectives (Maqaasid), application of
these set of rules are requires and are paramount. The usual risk associated with conventional
bonds are also attach to Sukuk for instance, most Sukuk issuance are in U.S. Dollars while
only few are issued in local currency, hence, there is the need for proper hedging against
fluctuations in interest rates and foreign exchange risk exposure for international Sukuk.
Issues are normally just several hundred million dollars, offering little secondary market
liquidity. More so, since the majority of Sukuk are issued in US dollars, it indicates currency
risk for all non-dollar investors; hedging will cut into returns Erik (2007).

4.3 Conclusion and Recommendations

As a viable instrument in the international and different domestic markets, it shall remain a
favored Islamic financing option especially in Muslim country with absence of conventional
securitization Andy et al (2007) Different country characteristics in terms of legal framework,
regulations and policy may hinder the achievement to be recorded by issuers and investors
especially in non Muslim countries who are trying to get familiar with this nascent
instrument. There are few Sukuk issues when compare to the conventional bonds, hence there
is the need to increase Sukuk issuance especially corporate Sukuk in different countries to
increase supply and demand locally as well as to deepen the domestic Sukuk financial market.
The secondary market for Sukuk is still developing and not so liquid; most Sukuk especially
the global ones are on long term basis; the explanation for the buy and hold attitudes of
investors. Therefore, efforts should be geared towards issuance of more long term as well as
short term Sukuk so as to enhance trading on it both at the primary and secondary market.
Despites the challenges facing Sukuk issuance, the instrument is expected to continue to grow
at a rate faster than the conventional bonds. Hence, there is need for further improvement on
Sukuk structuring and harmonization of differences in the Shari‘ah believes of different
Muslim countries for easy acceptability in non- Muslim lands. Proper documentation and
reporting by Islamic Financial Institutions and conventional ones offering the Islamic
products must be enforced by the necessary authorities monitoring the activities of Islamic
Financial Institutions. This will increase the confidence of investors especially Muslims who
are concerned particularly about ethical financing rather than the returns. Therefore,
International Islamic Financial Market (IIFM), Accounting and Auditing Organization for
Islamic Financial Institutions and the Islamic Financial Service Boards should increase
consultation in this regards and formulate policies that shall enhance ethical practices among
the players in this nascent industry.

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Appendix

Table 1 present the break-down of assets and the total global assets of Islamic Financial
Institutions.
Figure 1 present the geographical distribution of Gulf Corporation Countries
Figure 2 present geographical distribution of non-Gulf Corporation Countries from Middle
East and North Africa
Figure 3 present the geographical distribution of non Middle-East and North African
countries Steven and Joe (2007).

Table 2 Dow Jones Sukuk index Components

Name Coupon Maturity Par($m) Quality Country Stated coupon
Islamic 3.625 08/12/08 400 AAA Supranatural Fixed rate
Development
Bank
Kingdom of 5.83 06/30/09 250 A Bahrain Floating rate
Bahrain
Government of 5.808 11/04/09 1000 A+ UAE Floating rate
Dubai
Sarawak 6.493 12/22/09 350 A- Malaysia Floating rate
International
Islamic 5.513 06/22/10 500 AAA Supranatural Floating rate
Development
Bank
State of Qatar 5.736 10/09/10 560 AA- Qatar Floating rate
Abu Dhabi Islamic 5.760 12/12/11 800 A UAE Floating rate
Bank
DIB Sukuk 5.690 03/22/12 750 A UAE Floating rate
Emirate Islamic 5.660 06/12/12 350 A UAE Floating rate
Bank
Dubai 5.735 06/13/12 1250 A+ UAE Floating rate
International
Financial Centre
DP World Sukuk 6.250 07/02/17 1500 A+ UAE Fixed rate
Ltd
Source: Citigroup Index LLC
Table 3 Differences between Sukuk Bonds and Conventional Bonds
Sukuk Bonds Conventional Bonds
1.Shari‘ah compliant instrument, applicable Non Shari‘ah compliance, applicable to any
only to permissible transaction, no interest transaction, interest based.

2. It is asset-back Securitization It is not usually asset-back.

3. Holders have ownership say in the Holders have no ownership say.

underlying asset.

4. Holders and issuers are partners in Creditor-debtor relationship

business.

5. Holders have right to capital outlay and Holder has right to principal and interest.
profit from the underlying asset.

6. It could be based on profit/loss since the
entrepreneur and capital operate in an
uncertain business environment, hence the
brunt of loss is borne by both entrepreneur
and capital provider.
Based on interest, holders is less concern
about the uncertainty in the business
environment, hence, the brunt of loss is
borne by entrepreneur alone.

7. Not all Sukuk are tradable. All bonds are tradable.

8. Sukuk that represent pure debt to the Bonds can be sold at par, discount or
issuer can only be sold at par, at discount premium.
or held till maturity.

9. Different Islamic financing structure It is confined to the old loan structure.

could be apply to suit the investors and
issuer
Figure 4 Al-Murabahah Notes Issuance Facility

Al-Murabahah Notes Issuance Facility

(4) Issue Murabahah notes as

evidenced of indebtedness to
Investors through the SPV
Murabahah notes
Issuer & Arranger

(3) Resells assets at

(1) Identify a price higher than (2)
assets
Investors

Assets

(2) Sell assets on a

tendered basis SPV
Figure 5 Illustrations on Al-Bai Bithaman Ajil (BBA)

(3) Investors sells the asset to the Issuer at

a selling price $50,000 + profit margin

Investors Issuers
(4) The issuer repays
the investors by
installments
If n = 60 months and
(1) Issuer identifies
profit margin =
$25,000
the asset to be
(2) SPV sells acquired, notifies
monthly installment
the issued the SPV, issue
=
Sukuk to $75,000/60 Sukuk bonds
investors, = $1250
proceeds use
to purchases
the SPV
asset (at
$50,000)
AL-BAI-BITHAMAN AJIL FINANCING
7/14/2008 (SALE WITH DEFERRED PAYMENTS)

Figure 6 Mudarabah Sukuk Illustrations

Source: www.newhorizon-islamicbanking.com Mudarabah Sukuk

Figure 7 Ijarah Sukuk illustrations

 Ijarah Sukuk

(1)SPV sells
asset for cash
Asset Investors (2) Sale SPV
proceeds
(3) Leased asset to 100%
Project company
(5) Install mental
Rights to revenue
payment at agreed
collection under project terms; Asset Project Co
Redemption (4) Ownership may
upon maturity
revert depending
(rentals)
upon agreement 100%
Ijarah (4) Issues to Investors
Ijarah Sukuk as documentary
Sukuk evidence of ownership Infrastructure
Project

Figure 8 application of Bay’al-inal in Sukuk contract

Bay’ Al-’Inah- Buy back Sales

1) Sells asset X to customer for $15,000

2) Installment
Payments@ Issuer
Investors
$ 250
3) Sells X for $ 10,000

COF = $10,000 4) Cash payments $ 10,000

Profit rate per annum = 10%
Tenure = 5 years
Total profit = (#10,000 x 0.1 x 5) = # 5,000
Selling price = #10,000 + # 5,000 = # 15,000
Monthly installments = # 15,000/60 = #250

Bay‘ Al-‗Inah29

Figure 9 Diagrammatical presentations of Investors by continent in Malaysian Sukuk

2002

29
Diagramatical presentation of different types of Islamic instrument were adopted from Professor Saiful Azhar
Rosli text ―Islamic financial System‖, 2004 but with modifications to different types of Sukuk and applications.
 MALAYSIAN 2002 SUKUK-INVESTORS BY
CONTINENT

ASIA
30%
EUROPE MIDEAST
15% ASIA
EUROPE
U.S
U.S
MIDEAST 4%
51%

Figure 10 Diagrammatical presentations of Investors by continent in Malaysian Sukuk

2002

PAKISTANI 2005 SUKUK-INVESTORS BY

CONTINENT

EUROPE
22%
SAR,GF$MIDE SAR,GF$MIDEAST
AST
ASIA
47%
EUROPE

ASIA
31%

Figure 11 Share of Pakistani Sukuk 2005 by Sectors

 PAKISTANI SUKUK 2005-INVESTORS BY SECTOR

1%
11%2% STATE,GOVAG
25%
ASSET MANAGERS
ISLAMIC BANKS
18%
OTHER BANKS
PRIVATEBANKS
23% CORPORATES
20% INSURANCE

Table 4 Islamic Bonds By Country - Full Year 2006

Amount in U.S$ Million Percentage Issues
Malaysia 9,356 59.1 262
U.A.E 5,205 32.9 6
Saudi Arabia 818 5.2 2
U.S 168 1.1 1
Pakistan 152 1.0 2
Kuwait 100 0.6 1
Indonesia 21 0.1 1
Total 15, 820 100.0 275

Table 5 Islamic Bonds By Country - Full Year 2007

Amount in U.S$ Million Percentage Issues
Malaysia 17,713 48.6 255
U.A.E 11,018 30.2 15
Saudi Arabia 5716 15.7 5
Kuwait 775 2.1 3
Pakistan 635 1.7 16
Qatar 300 0.8 1
Bahrain 200 0.5 1
Indonesia 115 0.3 4
Total 36.472 100.0 300

Figure 13 Global Sukuk issuance by Country- 2006

Suku Bonds by Country- Full 2006

Malaysia
U.A.E
Saudi Arabia
U.S
Pakistan
Kuwait
Indonesia
Figure 14

Sukuk Bonds by Country- Full year 2007

Malaysia
2% 2%
1%10%
%
16% U.A.E
Saudi Arabia
48%
Kuwait
Pakistan
Qatar
30% Bahrain
Indonesia

Figure 14 Pie of reporting By IFIs of Shari’ah compliance activities and Financial

Activities

PIE OF REPORTING SHARED BY IFIs BASED ON

SCA AND FINANCIAL ACTIVITIES

Report
Report non Report FinAct&SCA
FinAct&SCA
40%
42% Report FinAct
Report non
Report FinAct
18%