Sukuk structure for deficit financing during COVID-19 crisis
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This paper identified the sukuk structure suitable for deficit financing during the COVID-19 crisis. The study also explored the relevant Shari'ah contracts that could be utilized to issue sukuk that is suitable for various jurisdictions and corporations in handling deficit financing during the COVID-19 crisis. The authors have adopted a qualitative research approach in which primary and secondary sources available on the subject were reviewed, especially a number of cases related to sukuk structures prior to and during the COVID-19 crisis and analyzed their performances and drawn their conclusions. The outcome of this paper suggests that certain sukuk structures used during the COVID-19 crisis aimed primarily at financing deficit have been successful. Furthermore, these sukuk structures are relied very much on the obligator's/issuer's cash flow position. It has been revealed that if the sukuk is structured on equity-based contracts with lower repayment amount or no payment, it would not trigger default because the nature of this sukuk is the sharing of profit and loss, in accordance with a Shari'ah rule that there will be compensation for any loss only if deliberate and notable negligence is proven. However, if it is debt based or ijarah and wakalah contracts, then the payment to sukuk holders ought to be made as agreed and if not, it will trigger default. This payment is to be made from the cash flow of the issuer and if there is an issue in the cash flow of the issuer due to COVID-19, consent from the sukuk holders needs to be obtained to reschedule payment as found in the case of the Garuda Indonesia sukuk. However, as found in MASB's IMTN sukuk case, if the cash flow of the company is good, then the chances of default are very slim. However, so far, three new sukuk in the middle of COVID-19 were issued, one by a corporation and two issued by a sovereign, one of which addresses the liquidity issues during the pandemic, and all these proved that sukuk is definitely a viable alternative mode for deficit financing and a reliable option during the COVID-19 pandemic. This paper looked into the sukuk structure, especially the sukuk which are yet to mature and the new sukuk issued during the crisis caused by the COVID-19 pandemic.
Sukuk , COVID-19 crisis , Deficit financing
Sa’ad, A. A., Muneeza, A., Haron, R., & Othman, A. H. A. (2022). Sukuk structure for deficit financing during COVID-19 crisis. Islamic Economic Studies, 30(1), 23-41. https://doi.org/10.1108/IES-01-2021-0007
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