Risk Management in
Islamic Financial Instruments
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Figure 2.3: Classification of Sukuk
Source: Securities Commission, 2009
According to Duskuki and Mohktar (2010), asset-based sukuk are utilized for one reason, the
fact that they allow the obligor to raise unsecured funding (meaning that they do not have to
part with their asset to get money and can use the money raised for any purpose they want).
Additionally, Dusuki and Mohktar posit that the sukuk’s proceeds do not necessarily go into
any specific projects and the obligor can pay the holders of the bonds using money from any
operations, not just those attached to the asset. Also, at maturity, the obligor pays back the
investor’s capital and needs to provide an asset to facilitate the Shari’ah requirement, despite
the asset never leaving their books (Duskuki and Mohktar (2010). This, according to Dusuki
and Mohktar, means these sukuks fail to fulfill one of the most essential features of
securitization, the ‘true sale’ requirement, which stipulates that the sale of the originator’s
asset must fulfill all and accounting and legal requirements in order for the asset to be
properly removed from the originator’s books (2010).
According to a study performed by Dusuki and Mohktar, in the majority of asset-based sukuk
structures, sukuk holders, who are supposed to own the underlying assets, do not have any
interest in the asset, something that holds especially true for unsecured asset-based sukuk (the
majority of the sukuk market). Another issue relating to the Shari’ah legitimacy of sukuks
structured in this way is the fact that, in the case of foreclosure, sukuk holders receive what is
due to them, even if the amount is insufficient after the assets disposal.
Contrarily, asset-backed sukuks, whose funds are interconnected by a specific asset (project)
attached to the bond, require the obligor to utilize monies generated from said asset, and at
maturity, a true sale from a legal perspective must take place (Duskuki and Mohktar, 2010).
From a fundamental standpoint, asset-backed sukuk holders cannot ask for such recourse