An Analysis on Project Sukuk and Project Bonds

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An Analysis on Project Sukuk and Project Bonds, Whichever Can or Should Be Chose to Fund a Project?

Table of Contents

Foreword

CHAPTER 1: INTRODUCTION

In This Dissertation

CHAPTER 2: CONVENTIONAL BONDS

Issuer

Special Purpose Entity (SPE)

Maturity

Principal

Coupon Rate (Interest Rate)

Price and Yield

Call Provision

Put Provision

Negative and Positive Covenants

CHAPTER 3: PROJECT BONDS

Project Finance

Project Bonds

Advantageous Aspects of Project Bonds

CHAPTER 4: SUKUK

Avoiding the Prohibited Businesses under Sharia

Uncertainty

Classification of Sukuk  Asset-Based and Asset-Backed Sukuk

Types of Sukuk

Mudaraba Sukuk

Murabaha Sukuk

Musharaka Sukuk

Ijara Sukuk

Salam Sukuk

Istisna Sukuk (Project Sukuk)

CHAPTER 5: A MATTER OF CHOICE, PROJECT SUKUK OR PROJECT BONDS?

Religion and Country Perspective

Social Justice and Interest Perspective

Comparison of Their Risks

Risk Associated with Conventional Bonds

Risk Associated with Project Bonds

Risk Associated with Sukuk

Legal and Regulatory Risk

Dana Gas Incident and Its Possible Effects on the Market

Comparison of Their Yields

CHAPTER 6: CONCLUSION

Foreword

The first aim of this dissertation is to provide necessary information about conventional and Islamic bonds. First chapter is dedicated to explain how Islamic finance works and the content of this paper. Second chapter gives least necessary information about conventional bonds to have a comprehensive understanding on following chapter (Project Bonds) and to compare the differences with fourth chapter (Sukuk). Third chapter analyze project bonds to address what it is and its difference than conventional bonds. Fourth chapter underlines most details of Islamic bonds, its challenges and application accompanied by Islamic project bonds. After all, you will find the comparison of conventional project bonds and Islamic project bonds. Finally, the last chapter is vowed to summary of entire dissertation.

The second aim of this dissertation is giving all the fundamental information in a basic way. Especially the chapters related to conventional bonds and project finance are more related to economics and capital markets than law itself. It may be challenging for a lawyer to understand these fields at the first meeting. To ease this hardship, I have tried to keep the structure and the words as clear as possible.

To explain Islamic bonds, it is an obligation to mention Arabic words for the sake of the common tongue. All the definitions of these words are given at the first use of them.

I am not an Islamic scholar and because of this, I tried to give all the necessary religious sources as backing. There is no proof or discussion related to validity of sukuk in this paper. In addition, the fact that there are more than one schools in Sunnite doctrine, on some manners, there are more than one truth. I kindly ask you to consider these important issues while you read. For more information for Sharia aspect of both financial instruments and other things related how to live, it will worth to look at the book named as Seadet-i Ebediyye Endless Bliss.[1]

To finish the dissertation within a certain word limit, some subtopics of all given topics are discharged, I hope that remaining topics will be enough to have an opinion on this analyze.  

INTRODUCTION
 

  1.   Islam governs all the relationships a person can be involved than just religious matters. It can be seen as a code of life and it is called Sharia[2] in Arabic. Economical transactions are one of the point that are regulated by Islam. Contrary of general feeling, Islam encourages people to transact any kind of businesses, not to prohibit secular operations as long as they are considered as valid in Sharia. This validity is basically provided with avoiding prohibited manners as interest and uncertainty.[3]
     
  2.   Islamic finance has been practicing since the Prophet Muhammed (sallallahu aleyhi and sallam) because of that it was related to all the relations among people in an economical way in daily life. Every person carries out some kind of transactions including selling, buying, renting etc. and these transactions are not limited with basic businesses. At that time, profit based partnerships, interest-free loans, complex contracts were also practiced.
     
  3.   Modern Islamic finance was born around 40 years ago, and crucially after 2008 crisis, interest to this area and growth in this business increased dramatically. Now the turnover of Islamic finance sector passed 1 trillion U.S. dollars and ever year the amount of growth is inclining. The reason behind this can be that, during the crisis, conventional financial system limped, on the other side, Islamic banking system has been continued to grow. Before 2008 crisis, it can be argued that almost all the people who enter any kind of business in Islamic finance sector, were Muslim. However, after the crisis, the people who have different religious belief, also started to invest that area due to the fact that if something is profitable and reliable, there is no reason for a non-Muslim person not to enter this particular area.  It can be said that the difference between Islamic and conventional finance sector is on structural design which conventional system is based on interest and uncertainty, but beyond that, I believe another big difference is related to the aim of the people who work in both sector. Islam requires social justice and avoid greed and insatiability. These characteristics are important especially at the time of distress.
  4.   Beyond all of these, Islamic finance is still at the point of progress. It may be seen that rules and framework of the Islamic finance are clear more than 1400 years and during the history, there are some Islamic states which were really powerful, so what is the logical reason about the progress is still at the early stage? In the history of the world, many things were in the power to drive the structural system since military or technology. Finance however, is the latest driver to form the world’s course in terms of Muslim countries. It is not totally wrong to say that, current Islamic countries are late co catch recent trends and related to this, development of the Islamic finance were slow until 2008 crisis. After that point, if some mechanisms will not go wrong such as Dana Gas[4], most likely we will see the boom of Islamic finance as a whole in near future.

In This Dissertation
 

  1.   In this paper, all the topics and subtopics of them are first explained to give least information. After that, comparison method is used to highlight advantageous points and their risks of given topics.
  2.   This chapter (first) is dedicated to give a prolog and then gives a clue about following chapters. Chapters are dealing with two major financial instruments as bonds and sukuk and compare them to find out which vehicle is most suitable for personal needs.
  3.   Second chapter explains very basic features and main structural design of conventional bonds. Some elements and players of conventional bonds are discussed to prepare some basics for both project bonds and sukuk. There are not sufficient information to understand all the aspects of conventional bonds, however, there are enough to compare project sukuk and project bonds especially in the aspect of their risks and returns.
  4.   Third chapter addresses the purpose and the reason for being of project bonds. Indeed, project finance and project bonds are significantly technical and wide topic, however, basic explanations and industries which project bonds are used to fund them are given in the chapter.
  5.   Fourth chapter is related to sukuk certificates. Sukuk issuance is a comprehensive area as conventional bonds, and due to this fact, only basic information which will help to understand project sukuk, is expressed as its cornerstones and main types.
  6. Fifth and the most crucial chapter illuminates the main differences among conventional bonds, project bonds and sukuk. Moreover, their risk and returns which is the purpose of this dissertation, are compares as much as the word limitation permits.
  7. Lastly, sixth chapter aims to give the summary of the dissertation and final thoughts on the compared methods as a nutshell.

CONVENTIONAL BONDS
 

    1.   Bond is a piece of paper issued by a borrower to lenders stating the terms of the loan and, if applicable any associated security.[5] (Haynes, 2010). Bonds have high significance for both obtaining and investing money. It is in our daily life even if we are not aware of since funding some services as well as we can aware of bonds on the TV stream.
    2.   Bond is an instrument for capital markets to raise a fund for borrower. On the other side, investors who attracted by bonds seek profit by investing bonds, or at least, they try to protect the value of money they have against the inflation.
    3.   There are different types of bones in the market and categorization differs to the characteristics of each type. We can categorize the bonds as their maturities[6], possession of securities, issuers, and the interest rate which may be fixed or fluctuated.
    4.   In this chapter, only limited and basic characteristics of bonds will be examined and some parts of the bonds as bond trading, related institutions etc. are omitted.
    5.   It can be said that investing bonds and stocks look like similar as an enterprise method, yet, these devices are quite different to each other. Their process, necessities, characteristics, players, and risks change dramatically if both are examined in detail.
    6.   In further topics, characteristics of bonds are described. It may help to understand basic features of bonds as well as project bonds and sukuk where they are appropriate.

Issuer
 

  1.   A bond can be issued by wide-range players and most likely it is the crucial point of the bond market due to the fact that investors decide their investment strategy by investigation the issuers among other elements.
  2.   First category for issuers is foreign governments. This type of issuers is considered more financially stable comparing to other issuers which there is a relativity in this manner when giant corporates taken into account. Bonds issued by the U.S. Treasury are deemed to be most secure in that risk of default.[7] (Faerber).
  3.   In addition to sovereign governments, corporates can issue bonds but it can be said that the risk of default can be high than the bonds issued by governments. The risk factor is always important for every party who is in this business due to price, interest rate, and other related risks.
  4. Local governments and supranational bodies can also issue bonds and because of that they cannot provide same assurance with U.S. Treasury, the pricing and issuing processes are like corporate bonds in general.
  5. If the risk of default is less than others, it most likely leads to offering low interest rate which is in nature of the bond market. It is said that U.S. Treasury is kind of risk free, then it is obvious to said that they will offer bonds those interest rates will be lower than the market.  But how investors can measure other companies’ or entities’ risks with objectivity?
  6. There are many credit rating agencies but three of them are more crucial for the market which are Moody’s, Standard & Poor’s and Fitch. These services regularly examine the corporations’ and sovereign governments’ financial status to disclose their ability to pay their debts back.
  7. Credit rating agencies use similar methods to rate establishments and finally give some marks to demonstrate their creditworthiness. Fitch and Standard & Poor’s use similar marking system while Moody’s uses different (BB, Ba1 respectively).
  8. After 2008 crises, confidence got hurt to the rating agencies, yet, they are still carrying out a significant role to guide players in the financial market. They categorize the establishments roughly as investible or speculative, however, it is vital to keep in mind that these ratings are just guides to the investors because of that the financial status of an establishment can recover or deteriorate in time. To prevent loss depending their rates, these rating agencies update the ratings of each establishments regularly or due to an event.

Special Purpose Entity (SPE)
 

  1. This is a subsidiary legal entity also known as special purpose vehicle (SPV), special purpose company (SPC), and financial vehicle corporation (FVC) in some countries and regions. The aim of these entities is achieving specific and/or temporary objectives. It is widely used in financial world, aiming both protecting the main business and parent company from financial risk, and also securitizing the complex financial transactions such as bonds and sukuk. It can also be used for illegal activities such as hiding debts or ownership. As it is mentioned before, it is a legal body and used for many reasons voluntarily or the reason of using can also be related with a legal obligation.
  2. In the perspective of bond and sukuk, special purpose entities also protect the bond or sukuk issuances through securitizes them, even if the parent company goes bankruptcy due to relevant or irrelevant factors.

Maturity
 

  1. Maturity of a bond indicates a specific time period that points when the principal (par value) and the final interest are paid to the investor. Length of time can be less than 1 year and up to 50 years. Indeed, some authors say that the time limit of bonds is between 1 year and 50 years and they call the bonds with less than 1-year maturity as money market debts[8]. (Choudhry, 2010)
  2. In general, maturity affects the interest rate of a bond. Longer the maturity, higher the interest rate we can assume, however, there are more factors that investors take position due to the maturity. Especially with fixed interest rate, if the interest rates tend to be changeable in the market, investors should be aware of possible losses or profits.

Principal

  1. Principal is an amount of money that the bondholder agrees to pay to buy a bond from the issuer, and issuer agrees to pay it back on the maturity date. Principal is also referred to as the per value, maturity value, redemption value or face amount. Generally, bonds are issued in denominations of US $1000, but some can be in denominations of US $5000 or even larger.[9] (Mobius, 2012)

Coupon Rate (Interest Rate)

  1. Coupon rate is the ratio of the principal and that shows an amount meant to be paid to the bondholder periodically during entire life of the bond. Paying interest can be seen as semiannually or annually. This type of interest-return is called fixed rated-interest coupons. Besides, a bond can be issued with floating rated-interest, which, their coupon rates reset periodically due to the changed interest rate tied to an index. In addition to both, there is a zero-coupon bond which pays no interest periodically, but the interest is paid at maturity of the bond.

Price and Yield
 

  1.  The price of a bond can be examined in two different areas such as primary and secondary market. In the primary market, the price of a bond generally equals to its per value. In the secondary market, there are many factors affects the price of a bond. Any change of the issuers’ credit rating and length of the maturity are major factors in terms of influence on the price. On the other hand, if the bond is fixed interest rate bond, during the lifetime of this bond, market interest rate will most likely fluctuate and this matter of fact has a great effect on the bond’s price. To illustrate; if a bond with 5 percent coupon rate has sold and a while later interest rate has increased to 6 percent, it gives rise to depreciation of the bond’s price due to the fact that investors can find new bonds with higher coupon rates at the same amount of par value. However, any decrease of the interest rate leads to appreciation of the bond’s price in the secondary market.
  2. Yield is a gaining because of holding a bond. This is related to the price and the coupon rate of the bond, still it explains the partial earnings of a bond. This can be examined in coupon yield as it is mentioned above, which is basically the interest income of the bond paid by the issuer periodically. The current yield is the bond’s annual coupon payment divided by its market price.[10] (Mobius, 2012). Finally, yield to maturity means the total amount of earnings such as principal and interest (assumed they are paid as they should be) during the lifetime of the bond considering as long-term bond yield.

Call Provision

  1. This is a covenant which can be term in the bond. Existence of its purpose is calling the issued bonds before their maturity. Issuer buys back of the entire bond, or part of it to save money if the interest rates drop during the bonds are in effect. As it is mentioned above, if interest rates drop, the market price of the bond increases which caused to sell this bond with premium. Likewise, if the issuer calls the bonds, they will pay par value plus premium and most likely issue another bond to both raise a fund and save money in difference of two coupon rates. Furthermore, if any deferred call provision is termed in the bond, the issuer can call the bond after this amount of time passed.

Put Provision
 

  1. Put provision is also a covenant like the call provision but for the benefit of the bondholders. Bondholder can give the bond back to the issuer and ask the money like maturity day brought forward. The advantage of put provision is that the bondholder can redeem the bond at its par value if interest rate inclined.

Negative and Positive Covenants
 

  1. Negative covenant is a clause in the bond agreement to restrain the issuer to carry out some activities. It is for benefit of the bondholder and protects the best interest of them. The issuer promises not to do these particular actions and it is clear that more negative covenants mostly means low coupon rate in a bond.
  2. Affirmative covenant on the other hand, is a promise given by the issuer to carry out some particular actions like auditing or insuring some businesses. The thought related to the coupon rate about negative covenants can be applied also here and this is mostly for the benefit of the bondholders.

PROJECT BONDS

Project Finance
 

    1.   According to the Basel Committee on Banking Supervision, project finance is described as: “Project finance (PF) is a method of funding in which the lender looks primarily to the revenues generated by a single project, both as the source of repayment and as security for the exposure. This type of financing is usually for large, complex and expensive installations that might include, for example, power plants, chemical processing plants, mines, transportation infrastructure, environment, and telecommunications infrastructure. Project finance may take the form of financing of the construction of a new capital installation, or refinancing of an existing installation, with or without improvements.”[11]
    2.   Emanuele Rossi defines the differences between project finance and corporate financing as; “Project financing differentiates from corporate financing in a way that project finance is a means of financing projects through SPV[12] as being the borrower for the senior debt.” He also adds that; “In traditional corporate lending structure, the capacity of raising additional debt depends entirely on the balance sheet strength, looking at the specific company’s balance sheets key performance indicators (KPIs). On the other side, project financing enables the shareholders to book debt off-balance sheet, whereby the debt capacity entirely depends on the projected future cash flows.”[13] (Rossi, 2015)
    3.   To provide a fund for a project, there are some methods since equity financing, debt financing, and alternative financing methods such as project bonds. Every way of raising fund has its own characteristics and pros and cons, yet, in this chapter, only project bonds are focussed.

Project Bonds
 

  1.   As it is mentioned above, bonds can be issued by many players for many reasons. If the purpose of issuing a bond is to raise a fund to build or establish an infrastructure, it is generally called as project bonds. It is not a new concept in the finance sector, however, due to the fact that other well-known funding options have been used widely, it can be said that project bonds are not the flagship instrument. On the other hand, after the enhanced Basel requirements, lending and borrowing money for both sides of the players are getting difficult, project bonds are now more attractive especially for the issuers.
  2.   Borrowing huge amount of money for long time is now more difficulty than before 2008 crisis. Capital adequacy requirements or, basically Basel 3 requires more strict and safe measures for banks. This matter aggravates investors who seeks to raise a fund for a project. Result of this matter can be ended up with such as borrowing same amount of loan for shorter time, or borrowing same amount of loan with higher interest rate, or more crucially not to borrow desired loan in the first place.
  3.   Project bonds is a specific name of a bond which is dedicated to raising fund for project. That means that project bonds carry out conventional bonds’ characteristics, risks, and challenges in their nature. Risks and challenges of projects bonds which are related to both bonds itself and project bonds exclusively, are explained and discussed with Islamic Bonds in the Chapter 5.

Advantageous Aspects of Project Bonds

  1.   Due to the enhanced financial precautions, borrowing a loan to raise a finance for a project comes with serious covenant which must gave by the investor. In a case of project bonds, investor should also bare some type of covenants but in many cases, the covenants termed for project bonds will most likely be less than borrowing a loan. It helps investors to carry on more freely, and easily operate his business and operations.
  2.   Due to the nature of projects, investors seek funds with long maturities such as 30 years, even up to 100 years.[14]  Borrowing a loan or financing desired fund for such long maturities can be difficult, expensive, and even impossible using other financing vehicles.

SUKUK
 

    1.   Linguistically, sukuk is the plural form of “sakk (certificate)”. According to Faleel Jameldeen, sukuk are not equivalent to conventional bonds. Instead, they are an alternative to conventional bonds[15]. Also, Mohamed Ariff has similar thought that sukuk cannot be classified as Islamic Bonds.[16]I can agree to these statements to an extend that some characteristics of sukuk such as interest, profit and loss sharing methods, ownership status, are different than conventional bonds. These thoughts have strong points considering characteristics of both finance methods. However, another comparison can be made with historical approach. Sukuk is not a new concept, yet, modern sukuk certificates have started to be issued roughly around 1980s. The main reason of converting traditional sukuk to modern sukuk was to find a new financial product to compete with conventional bonds, or at least to fill the gap caused of Muslims’ not able to use conventional bonds. In the eyes of regular investors, sukuk can be seen a different type of investment method comparing with conventional bonds. However, if Muslim investors are examined, sukuk certificates are their only financial instrument equivalent to conventional bonds. As long as major differences between them are well-known, I believe there is no harm to call sukuk as Islamic bonds.
    2.   “Sukuk (plural of sakk), frequently referred to as ‘Islamic bonds’ are certificates with each sakk representing a proportional undivided ownership right in tangible assets, or a pool of predominantly tangible assets, or a business venture. These assets may be in a specific project or investment activity in accordance with Sharia rules and principles.”[17]

Avoiding the Prohibited Businesses under Sharia
 

    1.   Benefiting from all the goods belongings is a core principal in Islam, however, Islam as a religion, have some restrictions for its believers to determine how they should live and the opposite. These prohibitions appear in transactions as well as other areas. Pork, gambling, riba, adult businesses etc. are deemed as haram. This prohibition is not only limited to the business itself but also it covers the proceeds of these businesses.
    2.   Being a partner of a business is normally considered permissible in Sharia. Partnership has various types as buying shares a company. Nonetheless, buying interest-free bonds (sukuk[18]) is permissible as long as other elements of sukuk issuance are complied with Sharia. If these types of investments are examined closely, there are some conditions that investors should scrutinize the all elements of these businesses beyond the nature of them. If a company either sold shares or bonds, enters some businesses which can be legally allowed, my not be permissible under Sharia. And the money comes from these involvements are regarded haram due to the specific conditions of the incident.

Uncertainty
 

  1.   Uncertainty in sharia is a situation that related party or parties do not fully aware of and/or informed about the transaction they carry on. It also means that a party or parties do not have the reasonable power to predict the outcome of the transaction. It may be result of their lack of knowledge or personal situation or of the transaction itself. Uncertainty means gharar[19] in Arabic.
  2.   Uncertainty can stem from missing information given to the any party. For example, in a sale contract, if the seller does not provide all the necessary[20] information to the buyer, this contract is deemed invalid due to the gharar factor in the transaction. Being unfamiliar with the service or product a person is about to have has vagueness with regard to him and this leads to gharar which is prohibited. This type of gharar can be result of the imperfect knowledge of the seller, failure of the seller or cheat of the seller and all types are invalid, however, the verdict given to the seller can be different according to each type.
  3.   Because of that uncertainty in a contractual relation is deemed harmful due to the fact that it can lead to possess something unfairly for all the parties, the prohibition of gharar aims that all the contracts must be tied up with reasonable matters. Knowing all the possible outcomes or forthcomings of a contracts is most likely impossible, but gharar deals with not all the aspects of the contract, but It focuses the main elements and the result. To illustrate, in a sale contract, parties must be aware of the price, the product, time of delivery etc. Gharar does not eliminate the risk factor in a contract, but it helps to identify the risk.
  4.   Almost every contract whether it is complicated or not, may have some elements that can lead to uncertainty. Gharar can be in insignificant amount of the product (i.e. contract points to 1000 grams but actual weight is 998 grams (which even this matter differs from contracts to contracts)) that may be ignored due to the conditions of the situation. Moreover, gharar to be prohibited should be related with core elements of the contracts.

Classification of Sukuk

Asset-Based and Asset-Backed Sukuk
 

  1.   Sukuk are a type of Islamic debt securities and they can be issued based on asset or backed with asset. The difference between asset-based and asset-backed sukuk can be seen in the table given below.[21] In regard to their general characteristics, although they both are sukuk, it can be seen that many aspects of them differ dramatically starting with how they are issued and through any recourse originated from them. Shalhoob, explains the difference between asset-based and asset-backed sukuk:

    “Based on the ownership of the underlying assets, Sukuk are categorised into asset-based and asset-backed. Asset-based Sukuk are investment certificates in which the underlying asset (not considered as the producer of the funds and the capital payments) is used to fulfil the Sharia requirements, where the originators retain legal ownership of the underlying asset and pass the asset benefits to Sukuk holders. In such Sukuk, the Sukuk holders in this case cannot sell the asset to a third party and their recourse is only to the originator/obligor as they do not have a legal ownership title… Asset-backed Sukuk on the other hand, are considered to be second category that consists of a true sale between the originator and the SPV. The SPV, in turn, issues the Sukuk and owns the assets. Sukuk holders, in this regard, do not have recourse to the originator where the returns are coming from assets, and asset prices might be different at all times.”[22]

    C:\Users\RSS\AppData\Local\Microsoft\Windows\INetCache\Content.Word\Asset-based V. Asset-backed.jpg

Types of Sukuk
 

  1. There are Islamic contracts as ijara, istisna or partnership agreements since mudaraba, murabaha and these kinds of Islamic contracts (which are explained later) and relationships can be used when an issuer wants to issue sukuk. Sukuk certificates must be complied with Sharia in terms of its approach to Islamic contract law. Moreover, sukuk certificates can be as variable types depending on issuer’s decision and more importantly, essential needs of each specific issue.

Mudaraba Sukuk
 

  1. Mudaraba (also called as mudarabah) contracts is a type of Islamic contracts, contains a partnership relation among parties. One party undertakes the role of investor (financier, rab-al-mal) and other undertakes the role of entrepreneur (mudarib). It is based on profit and loss sharing and investor brings all the needed capital, and at the same time, entrepreneur commits to carry on the business with his personal abilities looking out for maximise profit and protecting the business favourably terms and traditions. Rab-al-mal has no right to interfere the operations of the business at ongoing basis, yet, parties can agree restricted terms during the preparation of the contract. They share the profit according to the terms and pre-determined ratio. In regular circumstances, only investor bears all the financial losses, as well as entrepreneur bears only loss of his efforts. If the mudarib can be seen liable because of the loss (i.e. negligence), he should bear the loss according to the incident. Lastly, parties can be individual or company. It is a common finance method and its root goes back to the first days of Islam.
  2. Mudaraba sukuk is based on this type of partnership agreement under relevant contract terms. First, the company to issue sukuk, sets up a special purpose entity. SPE involves to the issuance as the rab-al-mal and originator (parent company) acts as the mudarib. Moreover, SPE collects money from sukuk investors to provide such fund to originator. All aspects of profit and loss sharing terms shall be determined in the first place of all these arrangements. Tradability of mudaraba sukuk is questionable, yet it is safe to say that in general, it is not allowed to trade sukuk certificates in the secondary market, but if the structure of the mudaraba sukuk is built up in the right way, they then can be tradable.[23]

Murabaha Sukuk
 

  1. Murabaha (also called as murabahah) is an Islamic financing structure similar to rent-to-own arrangements in conventional financing system. A party who needs cash, sells his assets to the other party (most likely to a bank), and then, the bank sells the same product to the its former owner on instalment basis. It can also be structured as bank buys a product and then sells it to the customer with mark-up. There are several conditions to engage in murabaha contract. All the information about the product which will be bought and then sold to the customer by the bank, must be clearly identified and classified and the product must exist at the time of arrangement.   It is a kind of Islamic loan agreement, but in contrast with qard hasan[24], bank’s first aim is to make profit out of this transaction. All the aspects, crucially profit margin, namely, the first and the second purchasing price must be pre-determined.
  2. Murabaha sukuk on the other hand, described as: “are certificates of equal value evidencing the certificate holder’s undivided ownership of the asset, including the rights to the receivables arising from the underlying contract.”[25]
  3. In Murabaha sukuk issuance, SPE acts as financier and the parent company acts as originator. SPE buys the asset based upon originator’s request and then sells the same asset to the originator based on deferred payments. Rest is similar to mudaraba sukuk which SPE issues sukuk to the sukuk investors and at the time of maturity, SPE and indirectly sukuk holders will be paid back both principal and mark-up.

Musharaka Sukuk
 

  1. Musharaka (also called as musharakah) contracts are a kind of partnership relationship between parties (musharik) which is similar to joint ventures. It differs from mudaraba arrangement due to the fact that in musharaka arrangements, more than one parties can provide both capital and entrepreneurship (management, labour). As it is clear, investor(s) can participate also the management process. Similar to mudaraba, profit ratio and the way or time limit of ending such relationship should be pre-determined. Losses on the other hand, should be proportionate to the capital ratios unless there is a specific term describes the outcome.
  2. Needless to say, proportion of both profit and loss sharing should be appropriate according the all contributions made by parties. If the current musharaka arrangements are examined closely, banks widely use this partnership agreement while issuing sukuk. Banks may have power to dictate its terms and manipulate profit ratio in a wrong way to its customers.  It is obvious that such business (which can be seen with other types of sukuk as well) has lack of justice and then its permissibility under Sharia can be questionable.
  3. In musharaka sukuk, the issuance procedures and the role of SPE are similar with mudaraba sukuk. Beyond that point, restrictions of trading sukuk certificates in the secondary market is less restrictive than mudaraba sukuk and in principle, they are tradable.

Ijara Sukuk
 

  1. Ijara (also called as ijarah) is a type of renting contract in Sharia. It can be seen similar to conventional leasing contracts, which lessor leases the asset to the lessee. It is a legal contract comes with some prerequisites for its validity. Lessor must be the owner of the related asset and must possess the asset at the time of the leasing contract. Because of the ownership of lessor, he must bear the financial risk related with the asset during the contract. This includes all the damage, insurance and repair cost of it. However, lessee should bear the cost of maintenance and regular expenditures occurred due to the using the asset.
  2. Ijara sukuk certificates are defined as they: “are certificates of equal value evidencing the certificate holder’s undivided ownership of the leased asset and/or usufruct and/or services and rights to the rental receivables from the said leased asset and/or usufruct and/or services.”[26]
  3. Sukuk holders are deemed as the owner of the asset by SPE’s purchase of the relevant asset. In general, SPE issues sukuk certificates and buy the asset in the name of the holders. After that, SPE rents the asset to the lessee company. Consequently, the lessee company makes rental payments to the SPE. As the owner of the asset, SPE and sukuk holders are responsible for the maintenance, damage and insurance, on the other hand, lessee company will only bear regular operating maintenance.

Salam Sukuk
 

  1. Salam (also called as salm) contracts under Sharia refers to a sale contract which the product will be in possession and delivered in the future but the full sale price should be paid in advance.
  2. As it is mentioned above, Sharia deems gharar as a harmful thing and restrictions of this matter is already discussed. When the history of salam contracts are examined, it can be seen that this type of contract was used at the time of Prophet Muhammed (sallallahu aleyhi and sallam) and he also has described the must have characteristics of this contract.
  3. To have a valid salam contract, parties should be aware of elements such as: products should not belong to the seller at the time of the contract, all parties must know the exact price, exact definition of the product in detail (quality, quantity, measurements, etc.), all parties must decide the time and place of the delivery and buyer must pay the whole price of the product at the time of entering the salam contract.[27]
  4. During the salam sukuk process, SPE issues sukuk to raise a fund and sukuk holders buy the certificates. SPE transfers the raised money to the originator to sell the relevant asset using a forward contract. At the same time, SPE appoints an agent and this agent takes role of selling the asset to the buyer on the determined time of the delivery as an underwriter. After the sale arrangement, SPE obtains the sale price with profit and distributes among sukuk holders after deducting the pre-determined cost of all the process.
  5. Salam sukuk is generally used for short-term fund financing and because of it is based on debt, it cannot be traded in the secondary market.[28]

Istisna Sukuk (Project Sukuk)
 

  1. As it is mentioned early, project bonds, which are a type of conventional bonds, are used to raise a fund to provide finance for specific infrastructure project. There is no specific and well-established project sukuk in the doctrine, yet, due to the fact that sukuk market is widely spreading, in the near future, terms and framework of project sukuk will surely take place in Islamic finance sector.
  2. Some types of sukuk are mentioned in this paper, and there are also other types of sukuk and hybrid models of it which are not mentioned. In terms of project sukuk, at the time of this dissertation, it can be stated that mudaraba, murabaha and istisna sukuk can be used to raise a fund for an infrastructure projects where they are appropriate. However, because of the nature of istisna sukuk, it can be the most appropriate equivalent to the project bonds.
  3. Istisna contracts in Sharia refers to a contract between a buyer and a seller who is also a manufacturer. The seller undertakes to produce a product or complete a construction in a future date. As salam contracts, istisna contracts has the manner of gharar in its nature and, it is deemed as permissible under some certain circumstances.
  4. To issue an istisna sukuk, parties use istisna contract parallelly to istisna sukuk to complete this complex transaction. In order to issue istisna sukuk, SPE issues sukuk certificates and investors buy them. The proceeds are then transferred to the obligator.  Until the project is completed, obligator may pay a rental fee to the SPE to distribute this amount of money to the sukuk holders, yet this is not an obligatory step. When the project is completed, title of the asset is transferred to the SPE, and SPE leases the asset to the obligator in return an amount which will be again distributed among sukuk holders. At maturity date, SPE transfers the title of the asset (sells) to the obligator in return to the determined amount. Collected proceeds from sale contract are distributed among sukuk holders at maturity.
  5. As it can be seen, sukuk holders may gain rental fee until the completion of the project. After the finishing the project, sukuk holders will collect regular rental fee until at the time of maturity of the sukuk agreement. When it is matured, their principals are paid due to the sale contract between SPE and the obligator.
  6. Lastly this type of sukuk certificates are based on debt not equity, and due to this factor, it can be said that they are not tradable in the secondary market. Although, they are still eligible to be sold without any discount on their per value.

A MATTER OF CHOICE, PROJECT SUKUK OR PROJECT BONDS?

Religion and Country Perspective
 

    1.   Bonds and sukuk are two types of securities of money market and highly attractive and profitable for their subscribers. When an individual or a corporate wish to invest or protect their money, they have numerous option do enter a business. The matter of choice can be related many factors such as risk, yield, their capability, market conditions etc. In terms of sukuk and other financial instruments are also related with individuals’ belief. Religion matter can drive the Muslim communities’ approach to financial life. If we examine a person or entity who does not decide according to divine aims, there is no difference between project bonds or sukuk whether if they are security holders or issuers. But in terms of people who wish to manage their financial transactions comply with Islamic beliefs, sukuk certificates are their only option against to conventional bonds. For this comparison, it can be said that sukuk certificates are more open to the wider community then conventional bonds.

Social Justice and Interest Perspective
 

  1.   Interest is basically an amount of a commodity (which can be a good or money) given to a creditor in return to use of the commodity on a predetermined or fluctuated rate. There are many theories about interest in a supportive or deprecatory way. It can be stated that interest has an indispensable meaning for the conventional financial system. In modern days, a big part of the financial system depends on interest both for savings and debts.
  2.   Riba[29] however, is prohibited in Sharia. Legitimacy of this prohibition can be found in a large number of sources since Qur’an and Hadiths. It is clear that riba is not permitted, yet, what riba includes may not be visible in every action. It is forbidden due to the order of Islam but we can examine the possible outcomes of riba if people use it.
  3.   Interest has two meaning in an interest-based contract. If an interest is determined, both the principal and side income are considered as riba in Sharia, contrary, in conventional system which deems only side income is considered as interest, principal is principal. It may lead a question that which is halal[30] or haram[31]? In general, if a commodity is considered as halal in Islam, using this commodity for any halal transaction method (i.e. selling) results with both transaction and commodity are considered as halal. But if a commodity is used by a haram way (i.e. riba), the outcome of this process is that both the commodity and transaction become haram.
  4.   Along with modern economy, discussions related to what is riba and what is not increase to so-called protect the money against the inflation. Some people argue that only excessive interest is prohibited, some people argue that only the inflation-rate interest can be permissible, while the rest debate that whether interest is high or low, it is prohibited. This dissertation is not a wide discussion about religious matters, nevertheless, practicing the last theory will not harm and it seems like the safest way to stand out of what can be wrong in the perspective of beliefs. This way of thinking can be backed up with the statement of Sayyidna Umar (Radi-Allahu anhu) which narrates that because of the riba verses are the latest verses, Muslims have not had enough time to ask their questions to be aware of all the aspects of the riba, and due to that, it is best to avoid what is even doubtful[32]. (Usmani, 2001)
  5.   Riba provides a wealth that the owner of it do not make an effort to gain. And the borrower undertakes a debt that only he is responsible if something goes wrong. It is certain that this kind of situation in the community generates injustice among the people. A group of people have money continue to gain more money without taking risk or entering any business, on the other hand, a group of people with less money continue to be borrowers and taking the risk of bankruptcy all the time. We can imagine a community that everyone has money and uses it to have interest, ultimately, they cannot find a person to lend their money and they also cannot find any person to carry on to supply daily needs of the life.
  6.   Islamic financial system depends on profit and loss sharing unlike interest earnings. This situation gives rise that, every person or entity are responsible to step in and enter into some kind of contracts that all parties have right on both possible profit and loss. At the time of uptrend, everyone who acts complied with Sharia, makes profit since conventional financial methods. But at the time of distress, whether individually or commonly, every party shares the damage not only one side of the contract, and this helps to prevent even worse outcomes. Islam acknowledges the concept of bankruptcy and avoiding the interest does not mean that no one can bankrupt, besides it encourages people to act harmoniously and accept all the possible results together.
  7.   Theoretical aspect of this comparison deserves better and comprehensive approach, yet, the feelings to interest differs person to person. Someone can act according to his religious beliefs and other can act due to his social justice manner. Whether interest is widely used, the information above is just to say that, interest is a harmful financial vehicle and people who desire to find out further thoughts on the matter, can easily find numerous researches on both topics.

Comparison of Their Risks

Risk Associated with Conventional Bonds
 

  1.   Many risks associated with bonds are mentioned earlier, here there are some specific types of risks with short explanations.
  2. Interest rate risk is about the inequality between the coupon rate and the interest rate. If the interest rate rises after obtaining a bond, the price of the bond will decline and this is always a great risk of loss for the bondholders even if related covenants are pre-determined.
  3. Call risk is about calling the bonds before the time of maturity by the issuer in case of any fall of the interest rate. Investors might face with several risks in the event of calling. Even if they are paid par value and in addition to that premium, they will lose the chance of generating high interest income. They also face with the risk of reinvesting the money came from par value. In addition to risks of nature in the bond market, they will reinvest their money at low interest rate.
  4. Inflation risk tells us losing purchasing power due to the inflation during the time of the bond. It can be faced with both fixed and floating interest, yet, bondholders feel the impact of inflation much if their bonds have fixed interest rate if the inflation parameters rise in the life of the bond.
  5. Credit risk is perhaps the most important risk but one advantage of it is that investors can partially oversee the status of the issuer before investing it. After holding a bond through the maturity, if something goes wrong with the issuer, bondholders should bear the risk of reducing the price of the bond, and more crucially, the risk of never be paid back the par value at maturity.

Risk Associated with Project Bonds
 

  1. Risk factor is a subjective term and it does not tell anything stand-alone. A risk against the issuer can be a benefit for the bondholders. Some risks also can be disadvantageous for only the issuer since protective regulations.
  2. Normally, during a loan relationship between a bank and a borrower, the bank will monitor the health of the borrower to be sure its capacity to pay its debt back. It is a continuous process and since this monitoring of operations, the bank most likely will be the first learner in case of any default in the financial health of the borrower. Contrary, due to the nature of bond, bondholders (at least majority of them) do not have chance and any privileged access to monitor issuers financial health. This risk belongs to both conventional and project bonds, however, in case of project bonds, this can be a bigger problem considering its size and background of the project.
  3. In case of any issue in the borrower’s financial health, the bank has a chance to step in and negotiate with the borrower, even interfere to its business at some extend. This may help the borrower get better financially, or at least may save them being bankrupt. However, bondholder may not always have chance to do similar actions, also they always do not have the enough power to make its financial stability better. Bondholders can sell their bonds immediately with discount or can enforce the borrower with relevant securities the borrower provided in the first place.
  4. Project bonds are liable to regulations amended for bonds itself. Due to this fact, they must be compliant with securities law to protects its’ investors unlike loans. This compliance process with related regulations is time-consuming and can be relatively expensive.
  5. As it is mentioned above, credit rating agencies rate companies and also their debt issuances. Bond investors can freely invest their money to any bond regardless its’ rating in general. However, it is clear that they generally canalise their money to safer project bonds rather than manipulative ones. In a case of borrowing a loan from a bank, the bank will process its own credit rating procedures and will decide according to it. However, in a case of issuing a project bond, the issuer should maintain project’s credit rating to achieve desired selling outcomes.
  6. Most of risks above are also related to conventional bonds. On the other hand, construction risk is mostly related with project bonds. In a conventional bond issue, there are already several assets and income belong to the issuer and interest and principal payment can be paid back in case of any default of the way of using raised fund. However, in a project bond issue, interest and principal payment depend on the revenue which will be generated at the end of the completion of the project. This is considered a risk for both sides of the agreement and significant aspect of the project bonds.

Risk Associated with Sukuk
 

  1. Sukuk certificates are similar financial vehicles to bonds. Their nature and approach to interest and other Sharia related prohibitions are different, yet some characteristics of both instruments can be examined together. Above, some risks of bonds and also project bonds are discussed. Due to the fact that, sukuk certificates have some of these risks as interest risk, call risk, inflation risk, credit risk etc. At that point, possible dangers and outcomes of these kind of risks are already given.
  2. It is crucial to mention that sukuk certificates have also other risks than conventional bonds due to its nature and bounds with Sharia.

Legal and Regulatory Risk
 

  1. Sharia as a legal system which can be interpreted differently depending on the interpreter. Moreover, if the main stream religious doctrines are examined, there are three main and different doctrines came out as Sunnites, Shiites, and Wahhabis. In addition to that, even in Sunnite doctrine, there are four schools such as Hanafi, Maliki, Hanbali, and Shafi’i.
  2. At the time of dispute, competent authority uses a kind of body of rules to solve the problem. However, if the relationship is based on Sharia related matter since sukuk issuance, it is a major concern that how and based on what the competent authority solves the current problem?
  3. Except Majallah el-Ahkam-i-Adliya[33], it is hard to find any stand-alone body of rules in Sharia. Majallah, even if it was written and compiled for the 19th century, it is still very useful and comprehensive source for many areas related to it. However, even though Majallah covers many areas itself, it may not be sufficient and detailed enough to address current issues deriving from modern understanding of Islamic finance starting with 1980s.
  4. Mentioned issues related to sources of Sharia are maybe the most crucial problems for all the parties involved with Islamic finance. Due to the fact that every transaction includes the risk of default of one party or parties, it most likely ends up with dispute resolution methods. Transactions based on Sharia, whether the dispute will be solved in Islamic or secular countries’ court, it is vital to build the structure of the contract considering these significant issues.
  5. During the negotiations of contract, parties can determine which law is applied to the contract for governing law. Theoretically, parties can determine a country’s law or such other law concepts. However, it is needed to approach carefully for this critical issue examining the options for both courts and arbitration.
  6. Beximco Pharmaceuticals Ltd. v. Shamil Bank of Bahrain[34] is a well-known case for applicable law issues about Islamic financial actors in the United Kingdom. In this case, the judge referred to the Rome Convention (Law Applicable to Contractual Obligations 1980) and argued that Sharia is not a national system of law and cannot be the governing law of a contract.[35]
  7. In addition, according to Abdullah Abdul Rahman, after the Rome Regulation entered into force, choosing a non-national law as a governing law is permitted.[36] However, it is safe to say that if a party will not consider to add an arbitration clause in the contract, since the demeanour of the judges are unpredictable, choosing a national law which is dominated by Sharia law, is the safest alternative.
  8. Choosing governing law for dispute resolutions in arbitration cases, is less complicated than courts. Sharia as a non-national law can be chosen by the parties for arbitration-related agreements. However, because of the nature of Sharia law it is not certain (there is no globally accepted standards of Sharia[37]) and in case of dispute resolution, it is possible that various provisions can be came across for a particular dispute. If a party’s needs coincide with a country’s law which is also Sharia law, choosing this system of law can be considered as rational.

Dana Gas Incident and Its Possible Effects on the Market
 

  1. Dana Gas is a private natural gas company is located in the Middle East, established in 2005 and listed in Abu Dhabi Securities Exchange. They issued sukuk in the amount of U.S. $700.000.000 using the structure of mudaraba agreement in 2013 over their subsidiary, Dana Gas Sukuk Limited.
  2. In June 2017, Dana Gas PJSC argued that their sukuk issuance is no longer Sharia compliant under the United Arab Emirates’ law (UAE). They claimed that the pre-fixed purchase price, guaranteed profit payments and distributions based on interest, not profit, cause to raise this decision under UAE law.
  3. The decision and statements are not examined in regard to Sharia in this dissertation, however, devastating effects of this incident especially on the Sukuk market and also on the entire Islamic finance are mentioned below.
  4. This is not the first incident in the Sukuk market, however it will be the first one which will be fully heard in a court. Previous examples such as Investment Dar experienced similar issue regarding to non-compliance with Sharia, however, they tried to solve the issue over its own Sharia Supervisory Board. That is the reason that these kinds of disputes are not known widely and could be solved relatively in quiet.
  5. In September, the first full hearing in the UK will be hold and whatever the first court’s decision is like, it is clear to said that parties will take the matter to the superior courts. No matter the final decision will be that the operation of Dana Gas is Sharia compliant or not, whole sukuk market will get hurt just because of the outstanding risk in the nature of the lack of legal protection.
  6. It is not occurred just because of the poor structure of modern sukuk issuance, but also so-called Sharia Supervisory Boards are involved in and they must be examined, well-structured and supervised.
  7. In Malaysia, there is a centralized body of Shariah Board and it both helps and checks all the Sharia related commercial transactions to minimize the risk of non-compliance. Non-compliance risk cannot be down to zero, yet, except Malaysia, no other country or authority took these kinds of strict and useful measures. In the near future, it can be said that most of the Muslim countries and even secular countries will act as Malaysia but until that day, sukuk investors bear this risk in their Sharia-related transactions.

Comparison of Their Yields
 

  1. Yield to maturity (YTM) refers to the total earnings during the life of a bond or sukuk. Mohamed Ariff have done an outstanding research (two following paragraphs)[38] on comparison of bonds and sukuk in terms of their yields to maturity.
  2. “The tests found that the mean yield of sukuk securities for all types of issuers and all forms of maturities was 4.02 percent. However, the YTM varied from 2.83 percent (sukuk securities issued by BNM[39] with three months’ maturity) to 5.87 percent (sukuk securities issued by AAA-rated corporations with 20 years’ maturity).”
     
  3. “The mean yield of conventional bonds for all types of issuers and all forms of maturities was also 4.02 percent, and the range was from 2.82 percent (conventional bills issued by BNM with three months’ maturity) to 5.75 percent (conventional bonds issued by AAA-rated corporations with 20 years’ maturity).”
     
  4. These outcomes are indeed valuable and shows a lot in terms of the similarity of these two methods. However, it is needed to mention that, even if bond and sukuk are seen similar to each other, as it is discussed above, their structures are also based on different foundations. Sukuk business around the world is still in the progress of growth and its cornerstones are not fully matured.
     
  5. Due to some reasons, sukuk issuers structure their issuances congruently with conventional bonds. The reason behind that may be to attract investors or to avoid from unknown, yet it is not an ideal way to build such a business. Issuing sukuk certificates must be driven with its own characteristics and structured freely to achieve its independence and to make it stand-alone financial instrument.

CONCLUSION

  1. ddd

[1] Published by “Hakikat Kitabevi, Turkey. Can be found online at http://www.hakikatkitabevi.net/books.php

[2] Sharia includes first sources as the Qur’an (the holy scripture of religion of Islam) and Hadiths & Sunnah (statements and practices of prophet Muhammad (sallallahu aleyhi and sallam)) and second sources as Ijma (consensus among Islamic jurists), Ijtijad (interpretation of first sources of Sharia by Islamic jurists), Qiyas (deductive analogy by Islamic jurists) and finally Urf (common practice).

[3] There are a lot of discussions and publications about what is permissible what is prohibited in the doctrine. Due to the word limitations, only crucial aspects are shortly described in this chapter.

[4] A situation about Dana Gas and its sukuk issuance. The time of this dissertation, the problem was new and it is discussed briefly in Chapter 4 in the risks of sukuk.

[5] Andrew Haynes, The Law Relating to International Banking, (Bloomsbury Professional, 2010), p.179

[6] Maturity of a bond means the time limit which determines when the borrower will repay his debt.

[7] The bonds which are issued by U.S. Treasury, are deemed as risk-free bonds. The meaning of risk-free in this concept refers to the capacity of U.S Treasury to pay the interest and the principal back. There are still risk factors of this kind of bonds in terms of interest rate risk, inflation risk etc.

[8] Moorad Choudhry, An Introduction to Bond Markets, (John Wiley, 4th Edition, 2010), p.

[9] Mark Mobius, Bonds: and Introduction to Core Concepts, (Wiley, 2012), p.

[10] Mark Mobius, Bonds: An Introduction to Core Concepts, (Wiley, 2012), p.

[11] International Convergence of Capital Measurement and Capital Standards, Basel Committee on Banking Supervision, (June 2004), p:49

[12] Legally and economically self-contained legal entity whose only business is the project.

[13] Emanuele Rossi, Infrastructure Project Finance and Project Bonds in Europe, (Palgrave Macmillan, 2015), p:8

[14] Documentation of Project Bonds, p 377

[15]Faleel Jameldeen, Islamic Finance for Dummies, (John Wiley & Sons, 2012), p: 208

[16] Mohamed Ariff, Sukuk Securities New Ways of Debt Financing, (John Wiley & Sons, 2014), p: 22

[17] Capital Adequacy Requirements for Sukuk, Securitisations and Real Estate Investment, Islamic Financial Services Board, January 2009, p: 3

[18] Islamic type of bonds based on different characteristics than conventional bonds.

[19] Uncertainty or hazard in a transaction in Sharia.

[20] Necessity of informing other party of the contract derives to many thing, in the basic way it can be described as influence on the decision of the other party.

[21] Hebah Shafeq Shalhoob, A Comparative Analysis of Risk-Return Characteristics Between Sukuk (Islamic Bonds) and Conventional Bonds, (PhD Thesis, Robert Gordon University, June 2016), p: 30

[22] Hebah Shafeq Shalhoob, A Comparative Analysis of Risk-Return Characteristics Between Sukuk (Islamic Bonds) and Conventional Bonds, (PhD Thesis, Robert Gordon University, June 2016), p:28-29

[23] Mohamed Ariff, Sukuk Securities New Ways of Debt Contracting, (John Wiley & Sons, 2014), p: 59

[24] Qard hasan is an Islamic loan with no interest. Generally provided for short-term needs and borrower can pay more than the debt as long as it is not stated in the whole process.

[25] Guidelines on Sukuk, Suruhanjaya Sekuriti Securities Commission (January 2014), p: 5

[26] Guidelines on Sukuk, Suruhanjaya Sekuriti Securities Commission (January 2014), p: 5

[27] Mohamed Ariff, Sukuk Securities New Ways of Debt Contracting, (John Wiley & Sons, 2014), p: 67

[28] Hebah Shafeq Shalhoob, A Comparative Analysis of Risk-Return Characteristics Between Sukuk (Islamic Bonds) and Conventional Bonds, (PhD Thesis, Robert Gordon University, June 2016), p: 51

[29] Interest in Sharia.

[30] Permissible.

[31] Prohibited.

[32] Muhammad Taqi Usmani, The Text of the Historic Judgment on Interest Given by the Supreme Court of Pakistan

[33] Civil code of Ottoman, entered into force in 1877, written by Ahmed Cevdet Paşa

[34] Beximco Pharmaceuticals Ltd. v. Shamil Bank of Bahrain, England and Wales Court of Appeal, Civ 19, Case No. A3/2003/1952 (2004)

[35] Usman Hayat, Adeel Malik, Islamic Finance: Ethics, Concepts, Practice, (CFA Institute Research Foundation, 2014) p: 46,47

[36] Abdullah Abdul Rahman, Sharia as the Governing Law of Islamic Finance Contracts in the UK: The Impact of Rome 1 Regulation and the Position in Arbitration, p: 2

[37] Wafica Ali Ghoul, The Standardization Debate in Islamic Finance: A Case Study (8th International Conference on Islamic Economics and Finance) p: 1

[38] Mohamed Ariff, Sukuk Securities New Ways of Debt Contracting, (John Wiley & Sons, 2014), p: 81-95

[39] Bank Negara Malaysia.

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