Incentive-compatible sukuk musharakah for private sector funding
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Despite the huge potential on both the demand and supply sides of the sukuk market, the current sukukstructures fall short of adequately meeting the market’s needs as the Shari'ah compliance of many of them and/or their economic efficiency are questionable. Even though partnership-based sukuk are claimed to reflect the true spirit of Islamic finance, their underuse as a financing instrument is a notable fact. Such a situation, if not addressed, will impede the development of the sukuk market in the future. This paper proposes an innovative sukuk musharakah model for consideration by companies and revenue generating infrastructure projects. The model has an incentive-compatible feature by making the share of the issuing entity in the profit positively related to its performance in addition to a convertibility clause. The sector Return on Equity (ROE), adjusted with the firm beta, is considered a benchmark for measuring the performance of the firm. The paper examines the design of the model, its risk return profile as well as its pricing for secondary market trading.
Sukuk , Sukuk musharakah
Diaw, A., Bacha, O. I., & Lahsasna, A. (2012). Incentive-compatible sukuk musharakah for private sector funding. ISRA International Journal of Islamic Finance, 4(1), 39-80.