FINANCE

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Islamic Capital Market-Sukuk-Sukuk Ijarah: Risk Analysis & Mitigation
I. Types of Risk
  • A. Credit Risk:
    • Relates to the originator's ability to pay the rental payments.
  • B. Market Risk:
    • Concerns the value fluctuations of the underlying leased asset.
II. Mitigation Strategy: The "Put Option"
  • A. Mechanism:
    • Incorporates a Wa’d (unilateral binding promise) from the originator to repurchase the leased asset upon rental payment default.
  • B. Repurchase Price:
    • Equivalent to the outstanding principal amount, less any future rental payments.
  • C. Default Consequence:
    • Future rental payments are waived to ensure compliance with Sharia principles (no payment without corresponding benefit).
III. Investor Protection
  • A. Put Option Defined:
    • Gives investors the right to sell the leased asset back to the originator using an agreed formula in case of default.
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