Sukuk are one of the fastest growing Islamic capital market (ICM) products which are very competitive and demand creativity from issuers for their structuring and issuance. Sukuk structures have evolved through time, from a simple structure to a more complicated structure or from having one underlying contract to hybrid structures using multiple underlying contracts. In Malaysia, for example, at the early stage of development most of the sukuk introduced by the ICM industry was structured based on a Bay’ Bi-thaman Ajil (BBA) principle. However, after some criticisms regarding the principles of BBA, which is closely related to the bay inah (sale and repurchase) practice, the industry players began to shift to another Shari’ah principle. This principle is believed to be more in line with the true spirit of Shari’ah (maqasid al-Shari’ah) and less controversial, namely ijarah. Subsequently, in recent times, it is also noticeable that most sukuk issuances are done with murabahah and musyarakah being its underlying contracts.
Furthermore, to address the various needs and demands of investors, especially in terms of securing the funds invested and the return and regular incomes, the principal arranger has opted to insert certain features to give confidence to the investors. This also influences the rating agencies in determining the rating of the sukuk in terms of the liquidity facility and capital guarantee. All this requires vigorous scrutiny from Shari’ah advisors in terms of its legitimacy of Shari’ah compliance in purview of the Shari’ah law.
Due to the fact that sukuk are structured based on Shari’ah principles, Securities Commission Malaysia has made it a requirement for a Shari’ah advisor to be involve in the sukuk issuance. Therefore, to ensure the Islamicity of sukuk, the requirement of the Securities Commission of Malaysia is that the structure of the sukuk and all legal documents of the sukuk must be examined and endorsed by the Shari’ah advisors of the sukuk issuance. This is also true in the international arena.
Consequently, Shari’ah advisors can be considered the backbone of the industry and without them the compliance aspect may be at stake. This paper will elaborate on the role of Shari’ah advisors in sukuk issuance.
