This structure applies the Ijarah Muntahiah Bittamlik contact.
Ijarah is a manfaah (usufruct) type of contract whereby a lessor (owner) leases out an asset or equipment to its client at an agreed rental fee and pre-determined lease period upon the aqad (contract). The ownership of the leased asset remains in the hands of the lessor for the duration of the lease.
Muntahiah Bittamlik describes the transfer of the title of the leased asset to the lessee at the end of the lease tenure.
The transaction flow for my version (as opposed to the version practised in the Malaysian market) of the Sukuk Ijarah is as follows:
1. The purpose of this transaction is to raise funds, therefore; the Issuer shall identify an (a pool of) asset(s) to be sold to the Investors. The Issuer enters into a Sale and Purchase Agreement with the Investors whereby the Legal ownership of the asset(s) is transferred to the Investors at the prevailing market price and on a willing buyer willing seller basis. The cash proceeds from the sale is utilised by the Issuer as they wish.
2. Trustees shall be appointed to hold the Assets in trust on behalf of the Investors. The Investors will have a pro-rata undivided beneficial interest in the Assets.
3. In the same session, after executing the Sale and Purchase Agreement, the Issuer will execute the Ijarah Agreement with the Investors. Under the terms of the Ijarah Agreement, the Issuer leases the Assets from the Investors for a predetermined period at a predetermined Ijarah rate. The Ijarah rate shall include two elements, the rental element and the asset price element.
4. The Issuer issues Sukuk Ijarah to the Investors as evidence of their lease and its obligations. The Investors are now known as the Sukukholders
5. Under the terms of Ijarah Muntahiah Bittamlik, the beneficial ownership of the Asset is transferred to Issuer at maturity of the Sukuk Ijarah provided the Issuer meets in full the obligations stipulated under the Ijrah Agreement.
6. In an event where the Issuer fails to honour its lease obligations, the Sukukholders (Asset owners) shall repossess the Assets and dispose them to the market to recover their investment.
Note: Steps 1, 2, 3 and 4 occurs consecutively in the same session.
Ijarah is a manfaah (usufruct) type of contract whereby a lessor (owner) leases out an asset or equipment to its client at an agreed rental fee and pre-determined lease period upon the aqad (contract). The ownership of the leased asset remains in the hands of the lessor for the duration of the lease.
Muntahiah Bittamlik describes the transfer of the title of the leased asset to the lessee at the end of the lease tenure.
The transaction flow for my version (as opposed to the version practised in the Malaysian market) of the Sukuk Ijarah is as follows:
1. The purpose of this transaction is to raise funds, therefore; the Issuer shall identify an (a pool of) asset(s) to be sold to the Investors. The Issuer enters into a Sale and Purchase Agreement with the Investors whereby the Legal ownership of the asset(s) is transferred to the Investors at the prevailing market price and on a willing buyer willing seller basis. The cash proceeds from the sale is utilised by the Issuer as they wish.
2. Trustees shall be appointed to hold the Assets in trust on behalf of the Investors. The Investors will have a pro-rata undivided beneficial interest in the Assets.
3. In the same session, after executing the Sale and Purchase Agreement, the Issuer will execute the Ijarah Agreement with the Investors. Under the terms of the Ijarah Agreement, the Issuer leases the Assets from the Investors for a predetermined period at a predetermined Ijarah rate. The Ijarah rate shall include two elements, the rental element and the asset price element.
4. The Issuer issues Sukuk Ijarah to the Investors as evidence of their lease and its obligations. The Investors are now known as the Sukukholders
5. Under the terms of Ijarah Muntahiah Bittamlik, the beneficial ownership of the Asset is transferred to Issuer at maturity of the Sukuk Ijarah provided the Issuer meets in full the obligations stipulated under the Ijrah Agreement.
6. In an event where the Issuer fails to honour its lease obligations, the Sukukholders (Asset owners) shall repossess the Assets and dispose them to the market to recover their investment.
Note: Steps 1, 2, 3 and 4 occurs consecutively in the same session.
Hi,
ReplyDeleteAs I see in your post there is lots of good information available on Islamic finance. Islamic finance has change a lot in the recent few years. Rest of the world specially American and European countries want to get advantage of these change in there own interest. Innovation of sukuk also one of the big reason that non Islamic countries look on the Islamic finance market.
Sukuk is an alternate way of investment where the investor get the benefits of investment and its treated as rent on investment, to avoid the interest on investment which is strictly prohibited in Islam.I have also some site and blog ,I have write on same topic check my post : http://portfolioanalyst.blogspot.com/2010/09/islamic-debt-bond-market.html, http://portfolioanalyst.blogspot.com/2010/09/sukuk-bond.html,http://portfolioanalyst.blogspot.com/2010/10/how-big-is-sukuki-bond-market-and-what.html.
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