The Role of Sukuk in Islamic Capital Markets
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Table 2.3: Optional Parties in Sukuk Issuances and Their Roles
Parties Roles and Responsibilities
Listing/registrar Listing means included in the official list of an exchange. Listing requires
ongoing disclosure. The registrar records the names of the holders. However,
not all sukuk are listed.
Market maker Investment banks which hold sukuk to facilitate ready buying and selling of
small amounts.
Hedging
provider
A bank or group of banks which hedge cash flows to enable the sukuk’s cash
flow to be met (e.g. local currency to foreign, or floating rate to fixed).
Underwriter Investment banks which underwrite a sukuk offering, i.e. purchasing an
amount of sukuk offered but not subscribed. Successful sukuk tend to be
presold and oversubscribed, thus reducing underwriting risk.
Secondary
investor
Entity or individual that becomes a holder and purchases the sukuk after it
has been traded in the secondary market by the primary subscribers.
Source: ISRA (2017)
2.5 THE IMPORTANCE OF ESTABLISHING SHARIAH ADVISORY BOARDS FOR
SUKUK
As an Islamic financial instrument, sukuk must adhere to the strict rules and requirements of
Shariah at every stage: structuring, issuance and trading. Compliance with Shariah is essential
in maintaining the distinguishing features of sukuk from conventional bonds and fixed-income
securities. Any breach in meeting Shariah requirements would negatively affect the growth of
the sukuk market. Consequently, it is imperative to establish a sound Shariah governance
framework (SGF) that performs an oversight function during different stages of the sukuk’s
development, from its inception and conceptualization until maturity. There is a role for
Shariah advisory, Shariah supervision, and Shariah review and audit functions. Most
importantly, a Shariah advisory board must be established to ensure effective, independent
oversight of Shariah compliance. Box 2.1 explains the roles of the Shariah advisory board
pertaining to sukuk, as outlined by the Shariah Committee of the AAOIFI.
Box 2.1: AAOIFI’s Ruling on the Role of the Shariah Advisory Board in Sukuk Structures
The Shariah Committee of the AAOIFI has issued the following rules for Shariah governance with
regard to sukuk issuance, following its study of 3 sessions:
(i) Madinah on 27 June 2007
(ii) Makkah on 8 September 2007
(iii) Bahrain on 13–14 February 2008
Shariah supervisory boards should not limit their role to the issuance of fatwa on the
permissibility of sukuk structures. All relevant contracts and documents related to the actual
transaction must be carefully reviewed (by them), after which they should oversee the actual
means of implementation, and make sure the operation complies, at every stage, with Shariah
guidelines and requirements, as specified in the Shariah Standards. The investment of sukuk
proceeds and the conversion of the proceeds into assets, using one of the Shariah-compliant
methods of investment, must conform to Article (5/1/8/5) of the AAOIFI Shariah Standard No. 17
[Investment Sukuk].
Source: ISRA (2017)