Islamic Finance – Islamic Capital Market - Sukuks
In a single issuance, hybrid Sukuks securitize both receivables and tangible assets. As previously stated, securities created through complete receivables-based or financial-asset securitization can only be traded at par value because they are regarded as monetary assets. This prevents the majority of Islamic receivables from being securitized, with the exception of Malaysia, where receivables have been securitized and sold as bonds. As such, accounts receivable cannot be converted into liquid assets and the financier must retain the receivables until maturity. The Islamic Development Bank (IDB) released the first and second Sukuk Istithmar in response to this issue by combining financial assets, Islamic receivables, and tangible assets in a ratio deemed appropriate by the bank's Shari'ah board. The Shari'ah court permitted the financial asset's composition in these two cases to be up to 70% as opposed to the tangible asset, which cannot be less than 30%. Prior to this Fatwa, many Shari'ah Boards, including the Dow Jones Islamic Market Index, agreed that 45/55 or 49/51 was an appropriate ratio of receivables to assets (DJIM). This Fatwa fits the need to securitize this financial asset because a large portion of the bank's assets are in the form of account receivables. Given the nature of financing undertaken by the IDB, which consists primarily of project financing in the form of Istisna' and asset financing in the form of Murabahah. This Sukuk is distinct and tradeable because it combines Ijarah assets (not less than 30%) and debts (not more than 70%). In this arrangement, the IDB bundles certain Ijarah assets (minimum 30%), as well as Istisna' and Murabahah receivables that it possesses (assets) and sells to the SPV for the SPV to issue Sukuk Istithmar. These assets will be subject to claims from the investors, and the IDB will use the money earned from their sale as operating capital. Later, the Accounting and Auditing Organization for Islamic Financial Institutions' (AAOIFI) Shari'ah Standard on Financial Papers supported this line of reasoning (No.21). This has opened the door for the hybrid method to be used in the future structuring of Islamic
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