Financing Through Sukuk: Benefits and Risks in GCC Countries Module

This project examines the benefits and risks associated with financing through the issuance of Sukuk, focusing on the GCC countries. The research begins with an introduction that defines Sukuk and its characteristics, differentiating it from conventional bonds while adhering to Sharia principles. It explores various types of Sukuk, including Murabaha, Ijara, and Musharaka, and their financing methods. The study covers the background of the Sukuk market, its growth, and its importance in Islamic finance, emphasizing the role of Sukuk in providing liquidity to Islamic financial institutions. The literature review delves into the concept of Sukuk financing, its advantages such as access to a wider investor base and compliance with Islamic law, and its associated risks, including bond-related and Sukuk-specific challenges. The methodology chapter outlines the research approach, design, and data collection methods, incorporating both qualitative and quantitative data analysis. The analysis chapter presents the findings, including qualitative themes on the benefits and risks of Sukuk, and quantitative data analysis. The conclusion and recommendations chapter summarizes the key findings, provides insights into the management of Sukuk-related risks, and offers suggestions for future research, aiming to assist companies in navigating the challenges of the current financial landscape.

Running head: BENEFITS AND RISKS ASSOCIATED WITH FINANCING THROUGH
ISSUANCE OF SUKUK, MODULE FROM GCC COUNTRIES
Benefits and Risks Associated With Financing through Issuance of Sukuk, Module from GCC
Countries
Name of the Student
Name of the University
Author’s Note

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BENEFITS AND RISKS ASSOCIATED WITH FINANCING THROUGH ISSUANCE OF
SUKUK, MODULE FROM GCC COUNTRIES
Acknowledgement
I would like to thank my University and the professor for allowing me to contribute as well as
providing opportunity to complete my research despite of all challenges that I have faced. It will
not forget the efforts that are made by the professors and other for guiding me with patience,
guidance and understanding. I would not have completed this research without their guidance
and understanding and you are all special to me.

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BENEFITS AND RISKS ASSOCIATED WITH FINANCING THROUGH ISSUANCE OF
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Abstract
The research has mainly focused on the benefits and the risks that are associated with the
financing through Sukuk. The primary chapter is the presentation which centres out the common
information around the thought in conjunction with the company. The targets of the research
generally has been talked around in this distribute another to the research confinements. Other
than, it in improvement highlights the research questions near to point and targets of the
research. Insides the second chapter, it contain of composing format which centres out the
components that are to be tended to insides the research. It connect of openings and threats
connecting appraisal of competitive advantage and techniques for moving forward the execution.
In chapter three, it highlights the strategy which centres out the methodologies through which the
research has been conducted. It sets the considering, approach, and organize, information
collection method and test of the research approximately sheds light. The fourth chapter joins the
results around and disclosures where the results nearly approximately are to be studied and
checked on as per the current circumstance which it highlights the looking over, evaluation,
openings, threats and competitive technique. Inside the final chapter, it deals with the conclusion
adjacent recommendation and utilization with the concluding thoughts have been said at the side
tending to the destinations and certain suggestion. The proposition that have been outlined would
offer help the company to manage with the dangers and challenges that are going up against in
current circumstance.

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BENEFITS AND RISKS ASSOCIATED WITH FINANCING THROUGH ISSUANCE OF
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Table of Contents
Chapter 1: Introduction....................................................................................................................5
1.1 Background of the Study.......................................................................................................7
1.2 Problem Statement.................................................................................................................9
1.3 Aims and Objectives............................................................................................................12
1.3.1 Aims..............................................................................................................................12
1.3.2 Objectives.....................................................................................................................12
1.4 Research Questions..............................................................................................................13
1.5 Scope of the Research..........................................................................................................13
Chapter 2: Literature Review.........................................................................................................15
2.1 Concept of financing through issuance of sukuk.................................................................15
2.2 Benefits of financing through issuance of sukuk.................................................................21
2.3 Risks associated with financing through issuance of sukuk................................................26
2.3.1 Bond Associated risks...................................................................................................29
2.3.2 Sukuk associated risk....................................................................................................31
Chapter 3: Research Methodology................................................................................................33
3.1 Research Onion....................................................................................................................33
3.2 Research Philosophy............................................................................................................34
3.3 Research Approach..............................................................................................................35

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BENEFITS AND RISKS ASSOCIATED WITH FINANCING THROUGH ISSUANCE OF
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3.4 Research Design..................................................................................................................36
3.5 Data Collection process.......................................................................................................36
3.6 Data analysis method...........................................................................................................37
3.7 Ethical consideration...........................................................................................................37
3.8 Summary..............................................................................................................................38
Chapter 4: Data Analysis...............................................................................................................39
Qualitative data analysis............................................................................................................39
Theme 1: Benefits that are associated with financing through issuance of Sukuk....................39
Theme 2: Risks that are associated with financing through issuance of Sukuk........................48
Quantitative data analysis..........................................................................................................60
Chapter 5: Conclusion and Recommendation...............................................................................68
References......................................................................................................................................77

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Chapter 1: Introduction
Sukuk is the type of legal instrument which consist the overall characteristics of a
financial certificate and it is commonly referred as the Sharia or the bonds. Accounting and
Auditing Organisations for Islamic Financial Institutions (AAOIFI) have defined the term that
points out the securities of equal denomination which are associated with an organisation in their
representation of individual interest. As per Paltrinieri et al. (2015), the portfolio of eligible as
well as existing future assets is required to be included in their normal course of business. Sukuk
have been developed with the conventional bonds which are required to be considered as
permissible by the Muslims as the interest within the business is required to be associated with
the compliant activity. Sukuk securities might consist of the particle ownership within the
investment company and that is required to be included with effective conventional bonds.
Representing the ownership within the real assets is required to be associated with the regular
payment cases which might affect the assets based ownerships. There are different type of sukuk
which are based on their activity along with the structures of the Islamic contracts. According to
Nasir and Farooq (2017), these are also depends on the project of the sukuk and their method of
financing which are required to be associated within the conventional bonds. These types of
sukuk includes Murabaha, Ijara, Istisna, Musharaka, Istithmar and others. A Sukuk is a sort of
financial certificate which is primarily Islamic in nature and it is nearly comparable to the bond
that are accessible in western finance.
Sharia is additionally related with the laws of Islamic religion. As the western back bonds
has distinctive structure, so the issuer of sukuk offers the bond in a conventional way together
with bunch of financer. As stated by Aloui, Hammoudeh and Hamida (2015), the conventional
shape of paying the bond structure is basically not allowable that is basically utilized by the

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issuer at the time of obtaining of resources. This also incorporates the bunch of financial
specialists which comprise of partial ownership. The real contractual promise moreover
incorporates the buyback of the bonds inside long-term data and the esteem would be at most
elevated. The western debt instrument that is conventional in nature is completely nearly
comparative as sukuk in UAE and it is primarily made for connecting the returns at the side
obligations within the cash flow of the company. As mentioned by Elian (2015), the resources
that are being acquired by an organisation within the nation moreover incorporates the successful
dispersion approach which would help in keeping up of the financial certificate. Besides, it
cannot be utilized as the vehicle for speculation which moreover focuses out the instrument of
the financial instruments which would nearly proportionate to Western interest payment bond.
Sukuk securities might comprise of the particle ownership inside the speculation company which
is required to be included with viable ordinary bonds. Speaking to the proprietorship inside the
genuine resources is required to be related with the normal installment cases which might
influence the resources based proprietorships (Arundina, Omar and Kartiwi 2015). There are
different type of sukuk which are based on their action beside the structures of the Islamic
contracts.
These are moreover depends on the extension of the sukuk and their strategy of financing
which are required to be related inside the conventional bonds. As per the Global Islamic
Economic Report 2016-17, certain amount of assets are managed with the compliant manner in
the year 2014. Based on the view point of Alswaidan, Daynes and Pasgas (2017), the amount of
assets amounts to $ 4.004 trillion and among which $ 342 billion are made up of certain sukuk.
The short as well as medium term financial instrument provides the balance sheet of the Islamic
financial institution which are required to be associated with more liquidity and that legitimized

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BENEFITS AND RISKS ASSOCIATED WITH FINANCING THROUGH ISSUANCE OF
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the overall use of sukuk in the GCC countries. At first, the contemporary sukuk were issues on
the basis of the market and that are required to be associated with the issuance of the sukuk. As
the sukuk market went at the international level, then these are required to be included with the
corporate sukuk which falls under several jurisdiction. The portfolio of eligible as well as
existing future assets is required to be included in their ordinary course of trade (Hassan et al.
2018). Sukuk have been created with the conventional bonds which are required to be considered
as permissible by the Muslims as the intrigued inside the trade is required to be related with the
compliant action. Sukuk securities might comprise of the molecule proprietorship inside the
venture company which is required to be included with compelling ordinary bonds. Speaking to
the proprietorship inside the genuine resources is required to be related with the customary
payment cases which might influence the resources based possessions. As opined by Zulkhibri
(2015), there are diverse sort of sukuk which are based on their activity at the side the structures
of the Islamic contracts. These are moreover depends on the process of the sukuk and their
strategy of financing which are required to be related inside the conventional bonds.
1.1 Background of the Study
The benefits and the risk that are associated with financing through issuance of sukuk
points out the background nature which are required to be associated with the standardising the
growing market. As opined by Najeeb, Bacha and Masih (2017), the Islamic fixed securities that
are generally issues in the global market are required to be enhanced with the investment grade
and that highlights the overall duration of one year. These are the securities which are issued by
the government and that includes the conversion of local currency which are to be introduced
with certain aspects. As per the Islamic financial centre, the securities with the sukuk tends to be
bought as well as held within the trading of the financial securities. The niche segment remains

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the virtually traded sector which involves the process of trading that are done in the institutional
level. Moreover, the size of the secondary market points out the financial securities which points
out the several prohibitions that transacts the unethical goods and the services. As stated by
Hasan, Ahmad and Parveen (2019), the returns of the earnings includes the effective loan
contract that highlights the excessive uncertainty which are based on the chances of contracting
at the secondary market. There are certain principles on which the financing through sukuk are
based on that highlights the set of several prohibitions which highlights the debts of financing.
Representing the sukuk highlights the aggregate along with the undivided shares which
points out the bond holders that includes interests and principles. The investors that are related
with sukuk moreover focuses out the debt commitment that are not appeared by the bond issuer
as the possess guarantor of resources highlights the costs. As the speculator do not possess the
debt commitment which own the part of assets and that ought to be included with the bond
holders and get a certain portion of the profit which are straightforwardly related with the assets.
Based on the view point of Mohamed, Masih and Bacha (2015), a few of the characteristics are
included with sukuk primarily focuses out that both of the investors includes the payment terms
and a sukuk speculator get the benefit that are primarily created by the method of basic of the
resources. Both bonds and sukuk are basically issued to the financial specialists and both have to
be considered to be the more secure venture in general values. The general popularity of this
specific financial instrument that is sukuk has ended up popular in GCC nations within the year
2000 and it has been to begin with issued within the nation of Malaysia. As influenced by Ismath
Bacha and Mirakhor (2018), the GCC nations has received it within the taking after year which
takes after the rules and control as per the Islamic participation and their policies. Islamic law

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BENEFITS AND RISKS ASSOCIATED WITH FINANCING THROUGH ISSUANCE OF
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basically prohibits the intrigued from a certain sum of cash which need to be utilized within the
handle of disseminating the in general benefits of the resources.
It primarily offer assistance the speculators for working within the region that need to be
sketched out by the sharia and would get the obligations of financing. The sukuk basically speaks
to the total and unified offers which would be included within the possession within the
substantial resources and its connection with the particular action of its investment. As per
Maghyereh and Awartani (2016), the Islamic fixed securities that are generally issues within the
worldwide market are required to be improved with the investment review which highlights the
generally length of one year. These are the securities which are issued by the government which
incorporates the change of neighbourhood money which are to be presented with certain angles.
As per the Islamic financial centre, the securities with the sukuk tends to be bought as well as
held inside the exchanging of the financial securities. As stated by Sclip et al. (2016), the niche
section remains the for all intents and purposes traded sector which includes the method of
exchanging that are worn out the regulation level. Additionally, the measure of the secondary
market focuses out the financial securities which focuses out the a few disallowances that
transacts the unscrupulous products and the administrations. The returns of the profit
incorporates the successful credit contract that highlights the over the top vulnerability which are
based on the chances of contracting at the secondary market.
1.2 Problem Statement
The problem that is associated with the research mainly points out the benefits and the
risks that are associated with the issuance of sukuk. The appreciation of the general interest
highlights the assets that points out the backing method which are required to be included with
certain aspects. The ownership of the assets mainly involves with the bonds that points out the

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overall debt obligation which are to be associated with non-financial business complaints
(Mohamed 2016). The similarities with the bond mainly highlights that the bonds are sold to the
investors in which they receives the payment within the day of maturity. These are intended to
provide the investments which are less risk than the equities of the companies for balancing the
portfolio investment. The idea of the investors involves certain risk that are associated with the
issuers along with the bonds that are sold by the brokers and the agents in their normal course of
business. As opined by Naifar and Hammoudeh (2016), the disclosure of the document is to be
associated with the prospectus that points out the securities which are selling in the issuer of the
sukuk bonds. The trust certificates that are associated with the bonds are mainly governed by the
western law which are mainly structured as per the original law. The streams of the payment also
involves with the involvement of asset ownership and these are to be associated with the
organisations which creates an off shore trusted certificates.
The inclusion of asset ownership incorporates the bonds basically focuses out the debt
obligation which have to be related with the speculators beside the payment streams. Based on
the view point of Rafay, Sadiq and Ajmal (2017), the trust certificate are basically administered
by the western law which need to be organized as per the law of the nation which is lovely much
complicated in nature. The associated organisation raises the stores that got to be made with the
offshore believe certified issues alongside the speculators that highlights the payment streams.
The company that raises stores primarily issues they believe certificates which got to be included
with the financing agreement within the GCC nations. Sukuk is additionally referred as the trust
certificate which have to be related with the investors and those ought to be included with the
similar kind of bonds. Because it could be a sort of Islamic financial certificate, so it comprise of
certain rules and direction which have to be taken after during the method of bond profitability.

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As influenced by Ahmed, Islam and Ariffin (2015), it is generally acknowledged for the
intrigued rate beside the resources that included within the inclusion of backing strategy. Sharia
are too known as the resource backing resources which got to be included with the bonds which
may be financial as well as non-financial trade complaints. Islamic law essentially disallows the
interested from a certain sum of cash which ought to be utilized inside the handle of dispersing
the in common benefits of the assets. According to Alam, Duygun and Ariss (2016), it essentially
offer assistance the speculators for working inside the locale that have to be sketched out by the
sharia and would get the obligations of financing. The sukuk essentially talks to the whole and
bound together offers which would be included inside the ownership inside the significant assets
and its association with the specific activity of its venture.
The Islamic settled securities that are for the most part issues inside the around the world
advertise are required to be progressed with the speculation audit which highlights the for the
most part length of one year. These are the securities which are issued by the government which
consolidates the alteration of neighbourhood cash which are to be displayed with certain points
(Ibrahim 2015). The short as well as medium term financial instrument gives the balance sheet of
the Islamic financial institution which are required to be related with more liquidity which
legitimized the in general use of sukuk within the GCC nations. These are in addition depends on
the expansion of the sukuk and their procedure of financing which are required to be related
interior the conventional bonds. The western obligation instrument that is customary in nature is
totally about comparative as sukuk in UAE and it is fundamentally made for interfacing the
returns at the side commitments inside money stream of the company. As per Ahroum and
Achchab (2017), the assets that are being procured by an association inside the country besides
consolidates the effective scattering approach which would offer assistance in keeping up of the