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7/23/2019 Chap 11 - Sukuk
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Islamic Financial
Products and Processes
Ameenullah Sheikh
7/23/2019 Chap 11 - Sukuk
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Sukuk – VENTURE Financing
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Sukuk is the Arabic word andplural of the word Sakk which means certificate.Sukuk are the certificates of
equal value representing undivided share of ownership in the assets and issued by the one who requirefinancing in huge.
In the Sukuk period the Risks and Returnsassociated with such Assets belong to Sukukholders which makes returns on Sukuk permissiblefor the holders.
Sukuk-Introduction
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Sukuk-Introduction
rade of such Sukuk is permissible! because itwill be equivalent to the sale" purchase ofholder#s proportionate share in the assets.
$owever! trading of %urabahah and SalamSukuk is not permissible.
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Issuance ofSukuk
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ABC
Ltd.
(Corporate)
A&' (td. wishes to purchase a new asset andplan to raise finance through issuance ofIslamic Sukuk.
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Supplier
ABCLtd.
Supplier of the Asset isidentified and negotiationsis finali)ed by A&' (td.
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Supplier
ABC
Ltd.
IssuerSPV
(LLC
100%
owned
ABC Ltd.)
S*+ is created by A&' (td. as a limitedliability 'ompany.
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Supplier Supplier Supplier
ABC
Ltd.
Pa!ent !ade toSupplier
"itle istransferred to
SPV
Pa!ent !ade toSupplier
"itle istransferred to
SPV
Pa!ent !ade toSupplier
"itle istransferred to
SPV
Issuer
SPV
(LLC
100%
owned
ABC Ltd.)
In#estors
S*+ issues certificates and receives proceedswhich are used to purchase asset from the
supplier
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S*+ holds Asset as rustee and leases theplant to A&' (td. as per
rules of I,arah
ABC
Ltd. SPVleasesPlant to
ABC Ltd.
on I$ara
Issuer
SPVIn#estor
SPVoldsPlant&
Asset as"rustee
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ABC Ltd.
(Lessee)
Issuer
SPV
In#estors
Periodic Lease'entals
Se!iannualcoupon distriutiona!ounts
A&' (td. -(essee pays periodic rentals to S*+amounts matching the coupon / tenor of the
Sukuk
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ABC Ltd.
(Lessee)
Issuer
SPV
In#estors
*+ercises te purcase
undertakin,. Assettransferred to ABC Ltd.
*ays the priceat dissolution
Redeems the rust'ertificates at
dissolution
A&' (td -(essee gives the S*+ an irrevocable purchaseundertaking to purchase the Asset at maturity.
Asset is transferred back on maturity! upon payment of the
*rice to the S*+ " Sukuk $olders.
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Rs.100,000 SUKUK
Pakistan Cotton Trading Ltd.Subscription Amount Rs.!!"!!!"!!!0quity *articipation #!$%!*urpose Balancing , Modernization & Replacement
Issued 1or 2hulam %ustafaIssued st &une #! to 'st (ecem)er #!#
Non- Transferable, Non-Endorsable, Non-Cashable, Non Collateralize
Rs.100,000
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Con*entional +onds
&onds are considered as an important part ofoverall financial system.
3ealing in &onds is not permissible according
to Islam because of two aspects.
4. 1irstly! they represent a portion of 3ebtpayable by the issuer. 0arning any kind ofprofit on debt falls under the category ofRI&A.
5. Islam prohibits trading of debts as it involves2harar.
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SU,U, VS +N(S
Sukuks
Represents the direct
pro rata ownership ofthe holders in the
assets of the pool.
Sukuk holdergenerally earn returnfrom income
generated through theasset.
Con#entional Bond
Representsa loanrepayable to the holderin any case.
0arn Interest on loan
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T/N, 0U
