Sukuk and Bond Puzzle: An Analysis with Characteristics Matched Portfolios

Hossain, Mohammed; Uddin, Hamid; Kabir, Sarkar Humayun

doi:10.1080/1540496x.2019.1706478

Cited by 16 publications

(25 citation statements)

References 48 publications

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“…In addition, repurchase price of the subject matter property should be based on its fair market value, rather than the nominal face value of original funds invested in Sukuk issue. Looking at the return and risk profile, Hossain et al (2020) indicate that while Sukuk returns are insignificantly different from those of bonds, Sukuk has significantly higher risk and its holders are not sufficiently compensated for that higher risk.…”

Section: Sukuk (Islamic Bonds)mentioning

confidence: 98%

The substance and form of Islamic Finance instruments: an accounting perspective

Ebrahim

Abdelfattah

2021

JIABR

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Purpose This study aims to critically analyze the fundamentals of the current major Islamic Finance (IF) instruments and contracts in light of both the foundations of IF and the concept of substance over form in the accounting conceptual framework. Such analysis is believed to be necessarily for the IF institutions to provide better and more genuine service to their customers. Design/methodology/approach To achieve the study purpose, the methodology is based on theoretical analysis and analytical review of the major IF contracts. Findings The IF industry needs to focus on the economic substance of the products offered to their clients. In developing and promoting their products, IF institutions need to focus on the ultimate and substantial goals of Islamic Sharia rather than re-packaging existing conventional products under different arrangements and formats to make them appear as Sharia-compliant to their clients. Both religious scholars and IF professionals need to engage in much deeper analysis and understanding of the substantial design of IF instruments and the concept of usury in modern economy. Research limitations/implications This paper does not intend to develop a comprehensive framework for the design of IF instruments to meet the economic substance and ultimate goals of IF principles or measure such economic substance. However, that is definitely a subject for further research. Originality/value By applying concepts like substance over form from other business fields such as the accounting theoretical framework to the IF instruments and contracts, we should gain better understanding and practical implications of these instruments and figure out ways to improve their design to be more consistent with and better serve the ultimate goals of the Islamic Sharia.

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Section: Sukuk (Islamic Bonds)mentioning

confidence: 98%

The substance and form of Islamic Finance instruments: an accounting perspective

Ebrahim

Abdelfattah

2021

JIABR

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“…For default risks, sukuk differs from bond because sukuk cash flow can be non-obligatory if it is a partnership based sukuk. For non-partnership sukuks, the default consequences are much lighter as compared to conventional bonds (Uddin et al, 2020). Therefore, the underlying sources of sukuk risks may not be the same as those of conventional bonds.…”

Section: Analysis Of Theoretical Backgroundmentioning

confidence: 99%

“…Therefore, we need to consider carefully if the comprehensive sukuk market index is an appropriate benchmark. Since a Shari'ah approved business project belongs to a specific industry, the performance of respective industries significantly influences the performance of a corresponding sukuk (Hossain et al, 2020). This suggests that an industry-based market benchmark could be a better choice than a comprehensive benchmark to estimate a sukuk's beta.…”

Section: Model Specificationsmentioning

confidence: 99%

“…This is especially important, because sukuk cash flows should be generated from the earnings of the underlying asset that is employed in a specific Shar'ah compliant business. Hence, the particular industry in which the business venture belongs plays a vital role in determining sukuk performance (Hossain et al, 2020). We test the time-series model [Equation ( 1)] using industry subsamples, and the findings are reported in Table 5.…”

Section: Sukuk Risk Factor Loadingsmentioning

confidence: 99%

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Why do sukuks (Islamic bonds) need a different pricing model?

et al. 2020

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The global interest in sukuk, an Islamic alternative to bond financing, has grown rapidly, particularly after the 2008 global financial crisis, due to its distinctive features and investment quality. Sukuk were first launched in Malaysia and are presently available in 29 countries, including the United Kingdom, United States, Singapore, Hong Kong, and Luxembourg. Despite the global market prevalence of sukuk, asset pricing literature has not yet addressed the pricing mechanism of sukuk, which is inherently different from bonds and equity due to the contractual differences. However, analysts use LIBOR, or the Islamic interbank benchmark rate, as the ad-hoc benchmark to evaluate sukuk performance. In this study, we develop a basic pricing model that captures the common risks in sukuk returns. We identify two risk factors for sukuk that require risk premiums: (a) sukuk market risk and (b) information asymmetry risk. Using these two common sukuk risks factors, investment analysts can estimate the fair value of sukuk more precisely than other ad hoc measures available.

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“…Theses Sukuk can be a possession of the assets of particular projects or specific investment venture, after receiving the value of the Sukuk, the closing of subscription and the employment of funds received for the purpose for which the Sukuk were issued (Ahmad 2016). As Hossain et al (2020) an argument has arisen related to the sukuk function centred on that the similarity of sukuk with bonds. Studies like (Safari and Ariff, 2013;Ahmed et al, 2015) expressed that the Sukuk even it seems doing the same bond work but it different.…”

Section: Introductionmentioning

confidence: 99%

Applying IFRS9 with Sukuk by IFRS’s Compliant Firms

Morshed

2020

International Journal of Islamic Economics and Finance Studies

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This paper explores the applying of the IFRS 9 by the IFRS's compliant firms with Sukuk, concentrating on the problems of Sukuk classification and using the expected credit loss model. Employing the methodology of three stages; started through a written survey with listed firms financial managers then semi-structured interviews language with Islamic accounting and IFRS's experts. Finally, a questionnaire distributed to external auditors.The article concluded; the IFRS's compliant firms could apply the IFRS9 with Sukuk with considering some Islamic rules related to the Sukuk. The article gives a practical guide to deal with Sukuk under IFRS9. Instructions were suggested to classify and measure the Sukuk. listed firms shall justify that treatment according to the IFRS's conceptual framework. Additionally, using the equity methods as IAS 28 and classifying as financial assets by fair value through profit or loss. Debt-based Sukuk are classified only under amortised cost since they are not tradable. The listed firms should apply the ECLM on Debt-based Sukuk only, and by using other prevailed factor than the interest rate when involving the expected credit loss.providing solutions to the mentioned problems will increase the willingness of the IFRS's compliant firms to invest in Sukuk and advance the Sukuk market.

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Sukuk and Bond Puzzle: An Analysis with Characteristics Matched Portfolios

Abstract: This document is the author's post-print version, incorporating any revisions agreed during the peer-review process. Some differences between the published version and this version may remain and you are advised to consult the published version if you wish to cite from it.

Cited by 16 publications

References 48 publications

The substance and form of Islamic Finance instruments: an accounting perspective

The substance and form of Islamic Finance instruments: an accounting perspective

Why do sukuks (Islamic bonds) need a different pricing model?

Applying IFRS9 with Sukuk by IFRS’s Compliant Firms

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