Sukuk structure and risk exposures: evidence from an originator perspective

What is it about?

Sukuk issuances, a common financial instrument in the Islamic finance world, are becoming more prevalent. However, there is a significant lack of understanding about the specific risks involved for the originators and sponsors of these issuances, as opposed to the investors. This study delves into these risks, using unique case studies and content analysis to draw insights. It mainly focuses on the challenges arising from the legal complexities and the need for Shari'ah compliance in Sukuk issuances. The study reveals that the originators must navigate and manage the risks associated with Sukuk structures, especially concerning Shari'ah compliance and the risk of default. Default situations raise specific questions regarding the interests of different stakeholders, such as shareholders and creditors, which vary based on the structure and contractual agreements of the Sukuk issuance. The findings of this study are significant because they highlight the need for effective risk management to ensure both Shari'ah compliance and the long-term viability of Sukuk issuances. This is crucial for the sustainable growth of Sukuk in the financial landscape. The study is unique because it focuses on the risks faced by the originators and sponsors of Sukuk issuances. This area has not been thoroughly explored before and highlights the importance of managing these risks for the overall corporate governance and sustainability of Sukuk issuances.

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