Sukuk Market
This domain tests whether you can define sukuk correctly, distinguish structures, and explain why tradability and asset-backing depend on the underlying contract.
Definition and standard
Sukuk are certificates representing undivided ownership in tangible assets, usufruct or projects - AAOIFI Sharia Standard 17. They are not debt instruments.
Structures
- Ijarah - the most common; rental from leased assets plus a purchase undertaking at maturity.
- Murabaha - represents a debt, so it may be traded only at par, not at a discount.
- Musharaka/mudaraba - equity-based, with returns tied to performance.
- Wakala - agency over a pool; commonly asset-based rather than asset-backed.
- Salam/istisna and hybrids - used for project and infrastructure finance.
Rules
- True sale of assets to the SPV and bankruptcy remoteness.
- Returns must derive from the asset or enterprise, not from a lending relationship.
- Most outstanding sukuk are asset-based: holders have credit exposure to the originator, not real recourse to the asset.
- A purchase undertaking at face value is accepted by many Sharia boards for ijarah but is contested for equity structures.
Worked example
An originator sells a $100m building to an SPV that issues 100,000 certificates at $1,000. The SPV leases it back at 6%, paying $3m semi-annually, and the originator buys the asset for $100m at maturity. Reasoning: the return is rent for ownership, so the structure holds. If the rental were payable regardless of the asset's usability, or repayment were guaranteed as a debt, the substance reverts to a loan.
Traps
Calling sukuk 'Islamic bonds' without qualification; assuming all sukuk are tradable, when murabaha sukuk are not; confusing asset-based with asset-backed.