Sukuk Market: Innovations and Challenges

Abstract

Sukuk products offer a vast scope of innovation and a large potential for the growth of Islamic finance. Various structures of sukuk based on ijarah, musharakah, mudarbah and many hybrids such as sukuk based on the combination of ijarah with istisna[ or the combination ijarah with istisna[ and murabahah etc., has evolved. Structures with convertibility features and those allowing the possibility of substitution of the underlying assets have also come in the market. However, these innovations have generated various Shari[ah, legal and economic issues and controversies. This paper discusses some of these important issues and challenges. Specifically, it deals with the issues of capital guarantee, contractual structures, pricing, and asset substitution in case of ijarah sukuk, musharakah sukuk, and their various forms. It also covers the issues pertaining to rating of sukuk, harmonization of Shari[ah rules, and problems involved in defining the governing law for sukuk issuance.