Sukuk bonds are certificates issued by a borrowing firm to the joint owners who provide the funds when a firm issues sukuk bonds. There are six different types of funding for six different purposes for which funds can be borrowed in a sukuk bond exchange. There are some 17 such exchanges and the exchange in Malaysia holds two-thirds of the outstanding value of such bonds. This chapter provides an introduction of the principles governing the issuance of such debt instruments. It also examines the pricing behaviour to show how the yields are different for different tenor, and for difference sin riskiness.
Gülsüm Ç. Dolgun and Muhammed H. Dolgun
Sukūk are compliant alternative mode of financing with partial ownership in an asset, or project or business or an investment. The most commonly used such structure is a replication of the cash flows of conventional bonds, as in rental (ijarah) and these are listed in exchanges and traded on secondary markets in some 17 countries: Malaysia accounts for two-thirds of this market. The issues relating to these mostly new debt-like products are discussed in this chapter. Starting with general information, the author provides a literature review and describe how the market has developed in the last two decades. The reader should note the debt-taking principles surrounding this new form of debt-like products, which are aimed to provide specific funding needs of businesses at various stages of their needs. Endorsed by international institutions, this form of debt-taking is considered much safer than the mainstream practices that is based on the firm taking the risk, and the financier taking little risk.
Mazen El Khatib
Waqf is an inalienable trust which is a perpetual endowment made by a living person for reason of piety that allocates the usufruct of that endowment to specific entities or individuals. There were many kinds of waqf that include but are not restricted to establishing houses of worship, centres of learning and hospitals as well as shelters for the needy. The money can be spent for building roads, caring for the poor, the needy and travellers. They even covered the funding of war efforts and caring for animals. Waqf is based on compassion, communication, social insurance and empathy among Muslims and even to benefit non-Muslims. This chapter discuss the concept of waqf from the shariah perspective, the common components of a deed, the restrictions and categories of waqf.
Mohamed Ariff and Shamsher Mohamad
Adam Smith traced the source of opulence of nation, which he called capital, to the uninterrupted efforts of every man to better his condition. Today we define wealth as the item that has some economic substance, a value such that this wealth can be used for several intended purposes, in modern economics, for consumption as theoretically glorified by the Utility Maximization Theorem (Arrow-Debreu). In this chapter, the reader is introduced to the modern idea of net wealth held by households and entities. The amount of wealth as at 2017 is given as US$ 250 trillion after all liabilities are subtracted from total wealth. In this context, Calvin’s contribution of wealth as God’s gift to man is referred to, which provides a continuity with Islam’s claim that wealth belongs to God, and He apportions who begets it.
Ziyaad Mahomed, Mohamed Ariff and Shamsher Mohamad
Debt issuances traditionally attracts a negative sentiment, so the corporation’s shares decline in prices around the time of the issuances. Sukuk being another form of debt, none the less, structured differently from a conventional bond, should have some effect on the shares when sukuk are issued and traded. We explore this aspect in the chapter only to find that the market appears to generally favour sukuk issues as good news, so the share prices go up. However, during the Global Financial Crisis era, sukuk issuances attracted negative sentiments.
Mohamed A. Gadhoum
The secular perspective on wealth has amply been explained in Chapter 1. This chapter is meant to clarify the meaning of wealth from the Islamic (shariah) perspective based on its main sources, the Quran and the Sunnah (Prophet’s sayings-cum-practices). Wealth is earned, accumulated and invested by its owner: contemporary perspective is that wealth is rightfully owned without much thoughts about the community in which it is held. Islam dictates wealth should be earned by permissible means, and should not be invested to harm the community in which the wealth is found. More than that, part of additions to wealth each year from investment returns must be paid as charity while wealth should be optionally be put to promote good deeds to serve the community needs. These differences create challenges to Islamic wealth management and estate planning for those who wish to fall in line with Islam’s injunctions on wealth.
This chapter introduces the reader to a brief description of modern finance ideas as regards wealth management. As at 2016, the total wealth under management as securities is about US$44 trillion managed by some 13,000 management companies. Humanity has accumulated wealth aster in the last century than at any time in history. Most of the wealth – almost three quarters of them - is concentrated in the industrialized countries. How the wealth is managed by advanced IT-based mathematical models is explained in this chapter. None of these methods are excluded if one were to adopt Islamic concept of wealth, which idea leans in ways to make the choices of wealth creation, and management on the basis of moral sentiments of the community in which wealth should be accumulated to benefit the community.
Wealth purification is an important aspect of Islamic wealth management. Purification can be in the form of giving that portion of wealth as charity. The best is to ensure that the wealth is earned in lawful means, so purification is not an issue at all. The objective of purification is to comply with God’s commandment to refrain from wrongful means of earning wealth so as to fulfill obligation of a normal person wanting to accumulate permissible wealth. Individuals and corporations are often focused on wealth accumulation, protection and distribution, but are usually short on wealth purification. There is an established practice to give as charity the wrongfully earned wealth to banks, and banks normally set aside such moneys to be paid to charitable purposes.
A significant distinction between mainstream and Islamic wealth management is the latter’s planning for zakat, an obligatory charity on the faithful with wealth in excess of needs above a specific threshold. This chapter reviews the concept of zakat, its levying structure, its rules and objectives and the economic impact of its distribution. Furthermore, we consider in brief the evolution of this institutions with its clearly defined principles. There are also challenges: there is no consensus on levying zakat on businesses since individuals could hoard wealth in firms (as do non-dividend paying firms) and most ministries consider it an obligation on individual shareholders, apart from the business. Challenges also exist in the effective distribution to eligible recipients. Without efficient disbursement, the responsibility may continue to burden the zakat-payer as a compulsory duty. Unless the challenges are overcome, the wealth effects of zakat may not achieve the desired objective of poverty-reduction and socio-economic empowerment.