Islamic Capital Market-Sukuk- Sukuk Mudarabah

Islamic Capital Market-Sukuk- Sukuk Mudarabah
I. Core Concept: Partnership

Foundation: Based on the Mudarabah contract, a partnership where one party provides capital (Rabb al-Mal) and the other provides management expertise (Mudarib).

II. Mudarabah Contract Features in Sukuk Structure

Capital Providers (Rabb al-Mal): Sukuk Investors
Manager (Mudarib): The issuing company (or SPV).
Capital & Profit: Neither is guaranteed.
Loss Liability: Mudarib not liable for losses unless due to negligence or misconduct.
Profit Sharing Ratio (PSR):
- Can be revised with mutual consent.
- Investors may agree to limit their rate of return (Tanazul).
- Remainder given to the manager as an incentive/performance fee.

III. Key Shari'ah Principle: Tanazul

Definition: Allows a party to a contract to relinquish their right/entitlement to another party without compensation.
Application: Investors may waive a portion of their profit, granting it to the Mudarib.

IV. Sukuk Mudarabah Structure (See Figure 7.2)

Issuance: Company/SPV issues Sukuk at a nominal value (e.g., $100 million).
Subscription: Investors pay subscription amount.
Investment: Proceeds used for identified business venture (construction, manufacturing, trading, services, mining, or oil production).
Profit Distribution:
- (a) Profit shared according to agreed PSR (e.g., 'x'% to investors).
- (b) Remainder, if any, goes to the SPV/Manager 'y'%
Redemption: Principal investment redeemed at maturity (e.g., $100 million).
Loss Allocation: Investors bear losses up to the investment amount.

V. Special Purpose Vehicle (SPV)

Purpose: Issuance vehicle to facilitate the partnership.
Function: Holds Sukuk assets separately from the issuer's other assets.
Nature: Typically a trust company, assets held for the benefit of Sukuk investors.
Protection: Creditors of the issuer cannot liquidate the SPV. Protects Sukuk holders' interests.

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