Islamic Investment and Treasury
This domain covers what a bank does with surplus liquidity: sukuk, interbank placement, liquidity facilities and screened equities. The exam favours sukuk structuring and the asset-backed versus asset-based distinction.
Sukuk
Sukuk are certificates representing ownership in an asset, usufruct, project or business, so holders receive rent or profit rather than interest. In sukuk al-ijarah, an SPV holds the asset, leases it to the originator, and distributes lease rentals; the originator usually undertakes to buy the asset at maturity at a stated price. In asset-backed sukuk, recourse is to the asset and holders bear its performance risk; in asset-based sukuk, recourse is effectively to the originator's obligation to purchase, which is the dominant sovereign structure. Shariah Boards accept asset-based structures only with clear disclosure that the credit risk is the originator's.
Liquidity and equity
Interbank placement commonly uses mudarabah or commodity murabaha; liquidity support is taken against Shariah-compliant collateral such as GoP Ijara Sukuk. Equity investments must pass business screens (no interest-based finance, alcohol, gambling, tobacco) and financial screens (interest-bearing debt and non-compliant income kept below policy thresholds), with the impure portion purified by donation.
Worked example
A bank invests PKR 50,000,000 in sukuk al-ijarah at a 9% rental. It receives 4,500,000 of rent, not interest, because it holds beneficial ownership of the leased asset. If the obligor defaults on the purchase undertaking in an asset-based structure, the bank's recovery depends on that undertaking; in an asset-backed structure it depends on selling the asset. The result differs because the risk sits in different places.
Traps
Assuming sukuk guarantee capital; treating asset-based and asset-backed as synonyms; ignoring purification; assuming a fixed rental on equity-type sukuk.