Islamic Finance – Islamic Capital Market - The dangers of a Sukuk Ijarah
Investors in Sukuk Ijarah assume two types of risk: the market risk associated with the leased asset as well as the originator's capacity to pay the rental. Most Sukuk Ijarah structures have a clause where the originator agrees, under the principle of Wa'd (a unilateral binding promise), to purchase back the leased asset if the lessee defaults on the rental payments in order to address the market risk problem. The price to be paid is equal to the quantity of the outstanding principal (less the future rental payments, which are payable by the lessee). Future rental payments are waived in any case of default because it is against the law to make the lessee pay the rental without providing a matching usufruct or benefit. This provision, known as a "put option," allows investors to "put to the originator" the chance to buy the rented asset at a predetermined formula.
0 Comments
Leave a Reply. |
AuthorAnything you need to know about finance, money and business Archives
May 2023
Categories
All
|