Search results for: convertible Sukuk

Authors: Mahfoud Djebbar

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Stock dilution is a financial phenomenon resulting from the issue of additional shares by a company, or when holders convert their convertibles into new shares (capital increase). This issue and/or conversion enlarge the company’s share base that will result in marginal dilution (loss) for existing shareholders, and a benefit to new ones. Dilution issues have already been addressed in mainstream finance, particularly as far as information disclosure is concerned. However, in Islamic finance, stock dilution problems have not been deeply studied and the subject has not received sufficient attention from shariah-compatible firms, investors, and scholars. In this regard, this paper emphasises the forms, the effects of capital dilution on current shareholders as well as the ways and techniques of compensating them. And since the research in this field, in its Islamic perspective, is still in its infancy, the paper tries to analyse the phenomenon theoretically in detail using numerical examples, and expose some case studies of Shariah-compliant issuers of convertible Sukuk and how they compensate their existing shareholders. Finally, this study shows that the Sukuk issuers compensate old shareholders using the right of shuf’ah as a well known and practiced pre-emptive right in Islamic transactions centuries ago, as well as the ways conventional bond issuers use.

Keywords: compensating shareholders, convertible Sukuk, Islamic financial innovation, Shuf’ah

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Authors: Ali Alshamrani

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This article aims to give a comprehensive and critical review of sukuk issuance in Saudi Arabia, and the extent to which the issuance of sukuk in Saudi Arabia is consistent with Shariah requirements. The article is divided into two sections. Accordingly, the first section of this article begins with an examination of sukuk in general, and includes the concept of sukuk, the basic principles of sukuk, common types of sukuk, and a critical analysis of the most important differences between sukuk and conventional bonds. The second section gives a critical analysis of how sukuk work in Saudi Arabia, offering the regulatory framework of the issuance of sukuk in the KSA, and the legal challenges from Shariah point of view, and provide recommendations to overcome these challenges.

Keywords: sukuk issuance, Shariah, Saudi Arabia, capital market authority

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Authors: Jamel Boukhatem, Mouldi Djelassi

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Contrary to the existing literature generally focusing on the role played by Sukuk in enhancing investors' and shareholders' wealth, this paper sheds some light on the Sukuk wealth effect across all economic agents: households, government, and investors by implementing a two-period life-cycle model with overlapping generations to show whether Sukuk is net wealth. The main findings are threefold: i) the effect of a change in Sukuk issuances on the consumers’ utility level will be different from one generation to another, ii) an increase in taxes due to the increase in Sukuk and rents is covered by transfers made by the members of generation 1 in the form of inheritance, and iii) the existence of a positive relationship between the asset prices representative of Sukuk and the real activity.

Keywords: Sukuk, households, investors, overlapping generations model, wealth, modeling

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Authors: Meysam Doaei, Mojtaba Kavand

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WAQF as a part of Islamic social security system is developed in Islam. Traditional WAQF has some limitations which are resolved in WAQF Sukuk. In regard to acceptability of Islamic finance in the world, WAQF Sukuk also has been developing in Islamic countries. In this paper, concept of WAQF, traditional and modern WAQF financing are presented. Then, WAQF Sukuk, its application and its model in Iran are developed.

Keywords: Al-mawqūfat development, traditional financing, modern financing, WAQF Sukuk

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Authors: Abdulamjid Obaid Hasan Saleh, Younes Soualhi

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This study explores the performance of the global Ṣukūk markets in 2023, focusing on their significance within the global financial ecosystem amidst complex economic challenges. The research highlights the modest annual growth of the total outstanding Ṣukūk value, which reached USD 850 billion by the end of the year, representing a 2.45% increase. However, it also identifies a 3.25% decline in new issuances compared to 2022, attributed to factors such as elevated oil prices, rising global interest rates, and heightened geopolitical tensions. Utilizing a descriptive and analytical methodology, the study compares the resilience of the Ṣukūk market with global bond markets, which experienced a sharp 17% drop in new issuances by the third quarter of 2023. The findings underscore the strategic positioning of Ṣukūk as a stable and competitive alternative within the global financial landscape. The study concludes by discussing potential avenues for growth and resilience in Ṣukūk markets.

Keywords: Ṣukūk market, performance, global Sukuk, resilience, global bond market

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Authors: Amrial, Yuri Oktaviani, Ziyan Muhammad Farhan

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On the phase of shifting paradigm into sustainability, Indonesia is involved in Sustainable Development Goals (SDGs) project. That act is revealed by creating Medium and Long Term Roadmap for Sustainable Finance in Indonesia which collaborated design by Indonesia Financial Service Board (OJK) and Ministry of Environment and Forestry. One of alternative for that infrastructure financing is sharia-based financing, Green Sukuk (Sukuk specified on sustainable infrastructure project). Green Sukuk for infrastructure financing in Indonesia can be issued by the government in the form of Sukuk Project Financing. Moreover, banks in Indonesia can also participate for the issuance of Green Sukuk. So that the banks can create a financing for people who are concerned about environmental issues. By using qualitative methods and literature review, this paper aims to discuss potential, strategy and planning of Green Sukuk for financing sustainable infrastructure in the purpose of SDGs. This paper will benefit for government to give scientific discussion on the strategy of Green Sukuk in promoting sustainable goals infrastructure project in Indonesia.

Keywords: green sukuk, infrastructure, SDGs, sustainable

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Authors: Siti Raihana Hamzah

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This paper elaborates risk shifting in debt financing system as the ultimate cause of the global financial crisis. In contrast, risk sharing in equity financing like sukuk helps the economic system to be better sustained. Nevertheless, some types of sukuk are haunted by the issue of imitation with bonds. The critics on the imitation issue not only have raised doubt on the ability of sukuk to diminish risk shifting behavior but also the ability of this Islamic financial instrument to ensure better future financial stability. Through that, this paper provides discussion on the possibility of sukuk to induce risk shifting and how equity financing may help sukuk to be free from risk shifting. This paper is important in the sense that sukuk receives a significant demand from investors throughout the world. For this instrument to be supportive in the future economic stability, the issue of imitation needs to be identified and addressed. Furthermore, critics cannot be focused on debts and its ability to gauge the financial flux but also to sukuk due to their structures similarity.

Keywords: global financial crisis, debt, risk-shifting, risk sharing, equity, sukuk, bonds

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Authors: Ons Triki, Fathi Abid

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The basic objective of this paper is twofold. It resides in designing a model for a contingent convertible lease contract that can ensure the financial stability of a company and recover the losses of the parties to the lease in the event of default. It also aims to compare the convertible lease contract on inefficiencies resulting from the debt-overhang problem and asset substitution with other financing policies. From this perspective, this paper highlights the interaction between investments and financing policies in a dynamic model with existing assets and a growth option where the investment cost is financed by a contingent convertible lease and equity. We explore the impact of the contingent convertible lease on the capital structure. We also check the reliability and effectiveness of the use of the convertible lease contract as a means of financing. Findings show that the rental convertible contract with a sufficiently high conversion ratio has less severe inefficiencies arising from risk-shifting and debt overhang than those entailed by risky debt and pure-equity financing. The problem of underinvestment pointed out by Mauer and Ott (2000) and the problem of overinvestment mentioned by Hackbarth and Mauer (2012) may be reduced under contingent convertible lease financing. Our findings predict that the firm value under contingent convertible lease financing increases globally with asset volatility instead of decreasing with business risk. The study reveals that convertible leasing contracts can stand for a reliable solution to ensure the lessee and quickly recover the counterparties of the lease upon default.

Keywords: contingent convertible lease, growth option, debt overhang, risk-shifting, capital structure

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Authors: Andrea Paltrinieri, Alberto Dreassi, Stefano Miani, Alex Sclip

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The financial crises caused a collapse in prices of most asset classes, raising the attention on alternative investments such as Sukuk, a smaller, fast growing but often misunderstood market. We study diversification benefits of Sukuk, their correlation with other asset classes and the effects of their inclusion in investment portfolios of institutional and retail investors, through a comprehensive comparison of their risk/return profiles during and after the financial crisis. We find a beneficial performance adjusted for the specific volatility together with a lower correlation especially during the financial crisis. The distribution of Sukuk returns is positively skewed and leptokurtic, with a risk/return profile similarly to high yield bonds. Overall, our results suggest that Sukuk present diversification opportunities, a significant volatility-adjusted performance and lower correlations especially during the financial crisis. Our findings are relevant for a number of institutional investors. Long term investors, such as life insurers would benefit from Sukuk’s protective features during financial crisis yet keeping return and growth opportunities, whereas banks would gain due to their role of placers, advisors, market makers or underwriters.

Keywords: sukuk, zero beta asset, asset allocation, sukuk market

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Authors: Khadijah Hasim, Achmad Fauzan Firdaus, Choirunnisa

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Waqf land which previously was idle assets can be built on top of a building that is a means for people to conduct business. Nadzir (waqf managers) lease of waqf lands it manages, the agreed rental fee, which is payable in the form of the building, not in cash. After standing building, the developer will lease to interested companies. Given the magnitude of the beginning funds needed, The company later issuing sukuk al-intifa on the trading floor. With this sukuk issuance, the company has sufficient capital to begin operations and pay obligations of the rental fee to the developer each year. Building that had stood trade area will be established (Micro, Small, Middle Entreprises) MSMEs. It is expected that through the sukuk al-intifa, can help to make waqf land previously unproductive due to lack of capital to be very beneficial and help awaken the people of Indonesian MSMEs

Keywords: Sukuk Al-Intifa, MSMEs, waqf land, underlying asset

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Authors: Ilhan Keskin, Hasan Bulent Kantarci

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In this study, one of the tools of Islamic financing known as “Sukuk” a non-interest bearing investment which has started to be implemented in Turkey and the world as a whole is discussed. In order to increase the vitality and efficiency of the economy, by taking lessons from the recent economic crisis new developments in the banking and investment sector are being expanded. The purpose of all investors is to obtain more revenue through the use of capital. The inability of traditional investment tools to meet the expectations of investors and the interest based financial system where one investor benefits at the expense of another there has been the need for a different, reliable and non-interest bearing financial market that is consistent with the Islamic rule. As a result an alternative and more reliable interest free financing tool “Sukuk” rental certificates covering people who are sensitive to Islamic rules, appeal to all segments, hidden remaining capital that contributes to the economy, reduce disparities in income distribution, common risk sharing system of profit and loss sharing has emerged. Today, for the structural countries by examining the state of the world market economy the applicability, enactment and future issues associated with this attractive kind of Islamic finance namely the “Sukuk” market has been explained.

Keywords: Islamic finance, islamic markets, non-interest bearing, rental certificates

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Authors: Ons Triki, Fathi Abid

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Along with the increase in the use of leasing contracts in corporate finance, multiple studies aim to model the credit risk of the lease in order to cover the losses of the lessor of the asset if the lessee goes bankrupt. In the current research paper, a convertible lease contract is elaborated in a continuous time stochastic universe aiming to ensure the financial stability of the firm and quickly recover the losses of the counterparties to the lease in case of default. This work examines the term structure of the lease rates taking into account the credit default risk and the capital structure of the firm. The interaction between the lessee's capital structure and the equilibrium lease rate has been assessed by applying the competitive lease market argument developed by Grenadier (1996) and the endogenous structural default model set forward by Leland and Toft (1996). The cumulative probability of default was calculated by referring to Leland and Toft (1996) and Yildirim and Huan (2006). Additionally, the link between lessee credit risk and lease rate was addressed so as to explore the impact of convertible lease financing on the term structure of the lease rate, the optimal leverage ratio, the cumulative default probability, and the optimal firm value by applying an endogenous conversion threshold. The numerical analysis is suggestive that the duration structure of lease rates increases with the increase in the degree of the market price of risk. The maximal value of the firm decreases with the effect of the optimal leverage ratio. The results are indicative that the cumulative probability of default increases with the maturity of the lease contract if the volatility of the asset service flows is significant. Introducing the convertible lease contract will increase the optimal value of the firm as a function of asset volatility for a high initial service flow level and a conversion ratio close to 1.

Keywords: convertible lease contract, lease rate, credit-risk, capital structure, default probability

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Authors: Mohd Bahroddin Badri, Ridzuan Masri

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Despite the existence of large volume of waqf assets, it is argued that the potential of these assets not fully unleashed. There are many waqf assets especially in the form of land waqf that are idle and undeveloped mainly because of the insufficient fund and lack of investment expertise. This paper attempts to explore few cases on the innovation of waqf development in Malaysia and some countries that demonstrate synergistic collaboration between stakeholders, e.g., the government, nazir, Islamic religious councils, corporate entities and Islamic financial institutions for waqf development. This paper shows that cash waqf, corporate waqf, Build-Operate-Transfer (BOT) and Sukuk are found to be contemporary mechanisms within Islamic finance ecosystem that drive and rejuvenate the development of waqf to the next level. It further highlights few samples of waqf Sukuk that were successfully issued in selected countries. This paper also demonstrates that the benefit of waqf is beyond religious matters, which may also include education, healthcare, social care, infrastructure and corporate social responsibility (CSR) activities. This research is qualitative in nature, whereby the researcher employs descriptive method on the collected data. The researcher applies case study and library research method to collect and analyse data from journal articles, research papers, conference paper and annual reports. In a nutshell, the potential of contemporary models as demonstrated in this paper is very promising, in which the practical application of those instruments should be expanded for the rejuvenation of waqf asset.

Keywords: cash waqf, corporate waqf, Sukuk waqf, build-operate-transfer

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Authors: Mufutau Ayinla Abdul-Yakeen

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An analysis of the five most used numerals and a proposal for the adoption of a Universally Acceptable Numerals (UAN), came up as a result of the researchers inquisitiveses of the need for a set of numerals that is universally accepted. The researcher sought for the meaning of the first letter, “Nun”, “ن”, of the first verse of Suratul-Kalam (Chapter of the Pen), the Sixty-Eighth Chapter of the Holy Qur'an. It was observed that there was no universally accepted, economical, explainable, linkable and consistent set of numerals used by all scientists up till the moment of making this enquiry. As a theoretical paper, explanatory method is used to review five of the most used numerals (Tally Marks, Roman Figure, Hindu-Arabic, Arabic, and Chinese) and the urgent need for a universally accepted, economical, explainable, linkable and consistent set of numerals arises. The study discovers: ^., I, \, _, L, U, =, C, O, 9, and 1.; to be used as numeral 0, 1, 2, 3, 4, 5, 6, 7, 8, 9 and 10 respectively; as a set of universally acceptable, economical, explainable, linkable, sustainable, convertible and consistent set of numerals that originates from Islam. They can be called Islameconumerals or UAN. With UAN, everything dropped, written, drawn and/or scribbled has meaning(s) as postulated by the first verse of Qur'an 68 and everyone can easily document all figures within the shortest period. It is suggested that there should be a discipline called Numeralnomics (Study of optimum utilization of Numerals) and everybody should start using the UAN, now, in order in know their strengths and weaknesses so as to suggest a better and acceptable set of numerals for the interested readers. Similarly study can be conducted for the alphabets.

Keywords: acceptable, economical, explainable, Islameconumerals, numeralnomics

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Authors: Md. Abu Yousuf

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Islamic social financing (ISF) refers to the fair distribution of wealth and financial dealings and prevents economic exploitation at all levels. ISF instruments include Islamic institutions Zakat (obligatory charity), Sadaqah (voluntary charity) and Waqf (endowment) based on philanthropy such and Qard-al Hasan (beautiful loan), micro takaful (insurance) and social investments through Sukuk (bonds) based on cooperation. ISF contributes to socio-economic development, end poverty, protects environmental sustainability, promotes education, equality, social justice and above all, establishes social well-being since the birth of Islam. ISF tools are instrumental towards achieving sustainable development goals (SDGs) set by United Nations (UN). The present study will explore the scope of ISF for community development in Bangladesh and examine the challenges in implementing ISF tools and will provide the most practical model of ISF. The study will adopt a mixed-method (MM) design in the process of data collection and analysis. The researcher will consider all issues related to ethics, reliability, validity and feasibility while conducting the study.

Keywords: Islamic social financing, sustainable development goals, poverty eradication, zakat, waqf, sadaqah, Islamic microfinance

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Authors: Paolo Biancone, Silvana Secinaro, Davide Calandra

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This study explores the integration of Islamic finance principles with environmental, social, and governance (ESG) criteria, focusing on the contribution of Islamic financial instruments to achieving sustainable development goals (SDGs). Through a systematic literature review (SLR) and bibliometric analysis of 66 documents from 2019 to 2024, the research addresses critical gaps by examining the alignment between Islamic finance and ESG, identifying emerging trends, and assessing operational challenges and opportunities. Findings indicate that Islamic finance, mainly through instruments such as green sukuk and Islamic microfinance, demonstrates substantial alignment with ESG objectives, anchored in its ethical principles of risk-sharing, fairness, and avoidance of harmful investments. Nevertheless, scalability and regulatory structures pose significant challenges to broader ESG adoption within Islamic finance. This study offers theoretical and practical implications, proposing that Islamic finance provides a solid framework to address sustainability shortcomings in conventional finance. Furthermore, it highlights future research directions, emphasizing the need for empirical studies on the long-term impact of Islamic financial products on sustainability outcomes and exploring the role of fintech in ESG integration.

Keywords: Islamic finance, ESG, SDGs, bibliometric analysis, Shariah-compliant investments

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Authors: Pouira Askary

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Indeed, in our globalized world which is facing with various international crises, the transnational corporations and other business enterprises have the capacity to foster economic well-being, development, technological improvement and wealth, as well as causing adverse impacts on human rights. The UN Human Rights Council declared that although the primary responsibility to protect human rights lie with the State but the transnational corporations and other business enterprises have also a responsibility to respect and protect human rights in the framework of corporate social responsibility. In 2011, the Human Rights Council endorsed the Guiding Principles on Business and Human Rights, a set of guidelines that define the key duties and responsibilities of States and business enterprises with regard to business-related human rights abuses. In UN’s view, the Guiding Principles do not create new legal obligations but constitute a clarification of the implications of existing standards, including under international human rights law. In 2014 the UN Human Rights Council decided to establish a working group on transnational corporations and other business enterprises whose mandate shall be to elaborate an international legally binding instrument to regulate, in international human rights law, the activities of transnational corporations and other business enterprises. Extremely difficult task for the working group to codify a legally binding document to regulate the behavior of corporations on the basis of the norms of international law! Concentration of this paper is on the origins of those human rights applicable on business enterprises. The research will discuss that the social and ethical roots of the CSR are much more institutionalized and elaborated than the legal roots. Therefore, the first step is to determine whether and to what extent corporations, do have an ethical responsibility to respect human rights and if so, by which means this ethical and social responsibility is convertible to legal commitments.

Keywords: CSR, ethics, international law, human rights, development, sustainable business

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