Incentive-compatible sukuk Musharakah for private sector funding
Joint Authors
Diaw, Abduh
Basha, Obiyathulla Ismath
Lahsasna, Ahcene
Source
ISRA International Journal of Islamic Finance
Issue
Vol. 4, Issue 1 (30 Jun. 2012), pp.39-80, 42 p.
Publisher
International Shari'ah Research Academy for Islamic Finance
Publication Date
2012-06-30
Country of Publication
Malaysia
No. of Pages
42
Main Subjects
Business Administration
Economy and Commerce
Financial and Accounting Sciences
Islamic Studies
Topics
- Islamic jurisprudence
- Islamic economics
- Right to property
- Private sector
- Financing
- Investments
- Stockholders
- Corporations
- Securitization
- Partnerships
- Credit risk
- Transactions
- Islamic Banks
- Deeds
Abstract EN
Despite the huge potential on both the demand and supply sides of the sukuk market, the current sukuk structures fall short of adequately meeting the market’s needs as the Shari’ah compliance of many of them and/or their economic efficiency are questionable.
Even though partnership-based sukuk are claimed to reflect the true spirit of Islamic finance, their underuse as a financing instrument is a notable fact.
Such a situation, if not addressed, will impede the development of the sukuk market in the future.
This paper proposes an innovative sukuk musharakah model for consideration by companies and revenue generating infrastructure projects.
The model has an incentive-compatible feature by making the share of the issuing entity in the profit positively related to its performance in addition to a convertibility clause.
The sector Return on Equity (ROE), adjusted with the firm beta, is considered a benchmark for measuring the performance of the firm.
The paper examines the design of the model, its risk return profile as well as its pricing for secondary market trading.
The theoretical properties of the model are empirically validated through two types of simulations: Monte Carlo Simulation and backtesting.
The proposed model constitutes a new class of financial security with respect to the residual nature of the claim and its limited tenor.
It, thus, presents an opportunity for diversification.
The model implies higher risk for the investor, as neither the profit nor the capital is guaranteed–like common stock– but the return is expected to be higher.
The model would entail higher financial cost for companies–as compared to debt instruments–but it would imply at the same time lower probability of bankruptcy, since the ÎukËk are equity-based instruments.
American Psychological Association (APA)
Diaw, Abduh& Basha, Obiyathulla Ismath& Lahsasna, Ahcene. 2012. Incentive-compatible sukuk Musharakah for private sector funding. ISRA International Journal of Islamic Finance،Vol. 4, no. 1, pp.39-80.
https://search.emarefa.net/detail/BIM-717651
Modern Language Association (MLA)
Diaw, Abduh…[et al.]. Incentive-compatible sukuk Musharakah for private sector funding. ISRA International Journal of Islamic Finance Vol. 4, no. 1 (Jun. 2012), pp.39-80.
https://search.emarefa.net/detail/BIM-717651
American Medical Association (AMA)
Diaw, Abduh& Basha, Obiyathulla Ismath& Lahsasna, Ahcene. Incentive-compatible sukuk Musharakah for private sector funding. ISRA International Journal of Islamic Finance. 2012. Vol. 4, no. 1, pp.39-80.
https://search.emarefa.net/detail/BIM-717651
Data Type
Journal Articles
Language
English
Notes
Includes appendices : p. 78-80
Record ID
BIM-717651