Islamic Finance – Islamic Capital Market – Sukuk Ijarah
The Sukuk Ijarah, which is based on a sale and leaseback idea, was the first Islamic fixed-income instrument or Islamic security to be recognised by the global market. The idea of asset-based securitization was first presented in 2002 when Sukuk Ijarah was developed through the Malaysian Global Sukuk Ijarah. These leased assets are represented by securities, also known as Sukuks, that are issued out of them. These securities reflect an undivided and proportionate beneficial ownership of the leased asset, and they can be traded if a willing buyer and vendor are present. A ground-breaking innovation in providing investors with Islamic fixed-income securities was the creation of Sukuk Ijarah. Sukuks are tradable on the secondary market free from any Shari'ah restrictions because they reflect the ownership right of the leased asset as opposed to Islamic bonds or notes, which only represent pure receivables. The Sukuk Ijarah's diagrammatic structure demonstrates that the originator, who is the owner of an asset, initiates the process of its issuance. In order to make the principal and rental payment to the investors, the originator leases the asset back from the SPV for an amount equal to (x + y). Because they contributed the funds to buy the asset from the originator through an SPV/issuer, the investors are considered to be the proprietors of this asset. In the sense that the asset has been packaged and divided into pieces, an asset-based securitization has now occurred. All ownership rights and a stake in the asset are being purchased by investors who bought these units. The investors are similarly eligible to receive the rental payment once this asset is leased back to the originator since they are the asset's owners and lessors.
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