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Islamic Finance: The New Regulatory Challenge, 2nd Edition by Simon Archer, Rifaat Ahmed Abdel Karim

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Chapter 17

Securitisation in Islamic Finance

Baljeet Kaur Grewal

Securitisation as a financing option has long been a popular mechanism for raising funds in the conventional context. In Islamic finance, the concept of securitisation takes on a more fundamental role as an intermediation between the issuer and the investor, the nature of the underlying assets, and the financial market at large, leveraging off the “asset-based” nature of the Islamic industry as a whole. Islamic securities known by the Arabic term sukuk (investment certificates) are issued for this purpose. This chapter will seek to provide an analysis on securitisation from a sukuk angle, studying its growth, depth, and potential through recent issuances, historical benchmarks, and performance using empirical data from a practitioner’s perspective.

1. PREFACE: AN OVERVIEW OF THE SUKUK MARKET

The sukuk market provides a range of much needed Shari’ah-compliant instruments having return characteristics, making them substitutes for conventional fixed-income instruments for investment by financial institutions and other investors that seek Shari’ah-compliant instruments as an alternative asset class. The “fixed-income-like” characteristics of such sukuk derive not from contractual obligations of the originator or issuer, as with conventional fixed-income instruments, but from the nature of the underlying securitised assets, which have a highly predictable income stream. As such, these sukuk are classed by financial analysts ...

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