News Category: Public
Register Date: Jul 16 2017
Publish Date: Jul 16 2017

Shariah Board of Securities and Exchange Organization released its resolution about Murabaha Sukuk

Murabaha sale is a kind of sale contract in which the seller informs the cost price, including purchase price, transportation, maintenance and all other related costs to the customer and asks for a certain excess amount or percent as his/her profit. Muslim researchers have recently designed a kind of security called Murabaha sukuk by using the characteristics of Murabaha sale and put it into operation in a number of Islamic countries, including Malaysia.

As Murabaha sukuk has been designed in different forms, it is difficult to give an exact and comprehensive definition but it can generally said that Murabaha sukuk is a kind of security of which the holders are commonly the owners of the financial asset (debt) which is provided on the basis of a Murabaha contract. These securities are fixed-income and tradable in a secondary market.
The bodies in Murabaha Sukuk
The natural and legal entities in the issuance of Murabaha sukuk, as stated in sharia board’s approval, could be introduced as follows:
Originator: is a legal entity, including the government or its related institutes, municipality or a private institute for which securities are issued.
Issuer (SPV): is a legal entity which is the issuer of securities. The SPV is a financial institute which is selected or established by the originator to perform a certain project.
Investors (security holders): are legal or natural entities that finance the originator by purchasing the securities.
Trustee: is a legal entity approved by the Securities and Exchange Organization supervising the whole process of issuance and all financial transactions shall be executed by its approval.
Investment Bank: is an institute acting as an intermediary between issuer and investors.
Rating Agency: is an institute working on credit rating of securities by the license received from the SEO.

Types of Murabaha Sukuk
1-Murabaha Sukuk for asset purchasing
An issuer SPV Established by the Originator issues Murabaha sukuk and collects the investors’ funds via an investment bank, then purchases in cash the commodity needed by the originator from the manufacturer (seller) and sells it to the originator at a higher price in form of an on-account credit Murabaha sale.
Originator undertakes the payment of on credit price to the sukuk holders via the investment bank on a certain maturity date. Sukuk holders shall be free to wait until maturity date to receive the final profit of Murabaha or sell their securities in secondary market with a lower profit. The primary market of such securities is based on buy and sell of a certain asset in cash or on credit which is of no prohibition in Islamic jurisprudence ; but the secondary market is based on permit to buy and sell of debt which is also permissible according to majority of Shiite jurisprudents.
2- In 1992, Malaysian private sector issued securities on bai al-inah (sale with immediate repurchase). The issuer purchased the assets belonging to the government, organizations and firms in cash, and then sold back the assets on credit at a higher price and payable at maturity against financial documents with certain amounts and maturities. The issuer could wait until maturity to receive the face value of the documents from the purchasers or sell (at discount) the securities in secondary market.
Sharia board believes that this type of Murabaha sukuk is the instance of prohibited bai al-inah which is not applicable.
3- Murabaha sukuk to create capital for trading companies
These securities are issued to create capital for a durable activity. Originator (trading company) establishes a SPV and issues Murabaha sukuk and collects the investors; funds and continuously buys in cash the commodities needed by the government, governmental companies and organizations, private firms and all other consumers from the manufacturers or selling centers on behalf of investors and sells the commodities back to the final consumers on credit by adding a certain percentage as its own profit. Then, the profit of this transaction, after deducting the issuer’s (trading company) commission, is distributed quarterly or annually via the investment bank among sukuk holders. Here, the SPV’s asset in every single time would be a mixture of commodities and credit transactions which belongs to sukuk holders commonly and could be transferred to others if necessary.
Murabaha sukuk of the third type is in form of companies’ stocks and could be issued without maturity or with a certain maturity and convertible to stocks.
4- Mortgage Murabaha sukuk
Murabaha sukuk could be used to securitize banks and leasing companies’ facilities. In this method originator (bank or leasing company) who has transferred assets to the government, firms and households in form of Murabaha sukuk (selling by installments) could securitize the accounts of Murabaha facilities and make its own resources into cash. For this purpose, originator establishes an issuer SPV to issue Murabaha sukuk, collect the investors’ funds and purchase from the originator (bank or leasing company) the debts of Murabaha facilities at a discount price. Then originator undertakes to collect from the debtors the face value of the debts and pay to sukuk holders via an investor bank. Sukuk holders could wait until maturity date and receive the final profit of securities or sell the securities in secondary market with a lower profit.
Sharia Board’s Opinion
Murabaha sukuk of the first type (Murabaha sukuk for buying of assets) and the fourth type (mortgage Murabaha sukuk) which are on the basis of Murabaha, Wakalah and bai dayn, according to majority of Shiite jurisprudents, would be permitted and applicable.
Murabaha sukuk of the second type (Murabaha sukuk to get liquidity) which is issued on prohibited bai al-inah, Wakalah and bai dayn, in majority of Shiite and Sunni jurisprudents’ opinions, would be prohibited and inapplicable.
Murabaha sukuk of the third type (Murabaha sukuk to create capital for trading companies) which is issued on continuous Wakalah and Murabaha and selling of trading partners’ portion, would be correct and permitted.


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