This book is a result of a major scholarship grant from the Khazanah Nasional Holding (a Sovereign Wealth Fund) to the University Putra Malaysia. This led to an international collaboration, with one of the authors of this book coming from Australia to Malaysia over a seven-year period to do joint research. Apart from our sincere gratitude to this funding source, our sincere gratitude is also extended to the Maybank Endowment at the University Putra Malaysia, which facilitated the joint research.

Several industry people extended their helping hands. Two we would like to name are Meor Amri Meor Ayob of Bond Pricing Agency Malaysia and Dr. Yeah Kim Leng of Bond Rating Agency Malaysia, both of whom made it possible for us to access data and expertise at their respective firms. Mervyn Lewis, in Adelaide, Australia, and Michael Skully and Abdullah Saeed, both in Melbourne, Australia, deserve a special mention for their continued joint work on Islamic finance research that has added a fair amount of new knowledge to this fledgling field of study.

To the numerous others who participated in the making of this book, we owe an intellectual debt for sharing their ideas, time, and expertise.

We owe an intellectual debt to Peter Casey for his permission to reproduce a chapter on regulatory lessons (Chapter 11). He is an experienced regulator of sukuk markets with experience in the United Kingdom and United Arab Emirates. Equally important, we thank Abdullah Saeed and Omar Salah for their elucidation in Chapter 3 on the theoretical aspects of sukuk structures. They have all added great insights on the regulatory framework.

The professional staff at John Wiley & Sons has been very helpful in the long process of converting the manuscript into a book. We would like to specially mention the four whom we got to know: Nick Wallwork, Jeremy Chia, Gladys Ganaden in Singapore, and Kimberly Monroe-Hill in Hoboken, New Jersey, United States of America.

About the Authors

Meysam Safari, PhD, is a senior lecturer at SEGi University, Malaysia. With a scholarship from Khazana Holdings Malaysia, he spent five years researching the topic of sukuk under the guidance of the other two authors at the University Putra Malaysia. He holds an undergraduate engineering degree and a doctoral degree in finance from the University Putra Malaysia.

Mohamed Ariff, PhD, a professor of finance at the Bond University, Australia (and the University Putra Malaysia), is widely considered a specialist on Asian Pacific finance and Islamic finance. He served in 2004-2007 as the elected president of the 26-year-old Asian Finance Association. He is a coauthor of investments, a leading McGraw-Hill textbook, and has authored or coauthored 33 other books. His scholarly articles have appeared in leading economics and finance journals.

Shamsher Mohamad, PhD, is a professor at the International Centre for Education in Islamic Finance, also known as INCEIF. He has served in various capacities over 31 years, rising to his last position as dean of the economics faculty at the University Putra Malaysia. He has authored or coauthored several books (including Efficiency of the Kuala Lumpur Stock Exchange and Stock Pricing in Malaysia). He has published scholarly papers in finance journals.

One. The Foundation of Sukuk Securities

Introduction to Sukuk Markets

On Christmas Eve 2013, Pope Francis, in his first apostolic exhortation, pleaded for "a return of economics and finance to an ethical approach which favors human beings." Instituting an ethical approach to finance is the purpose of Islamic financial markets, which have created securities that conform to Islamic scripture and traditions. In some countries this form of contracting has been dubbed participation finance to emphasize the profit-sharing aspect of this new market practice. Islamic securities are specially tailored financial products that conform to the set of ethical and common law-based financial transaction principles laid out in Shari'ah, or Islamic law. Shari'ah literally means "the way," and it takes its body of principles from the Quran and the Sunnah (an account of the normative behavior of the Prophet Muhammad). Those principles are strictly applied when designing the financial contracting terms that cover such products. Compliance is assured by a committee of experts working at each financial institution, and the institutions must abide by the rulings of both the national and international committees on compliance standards.

Although sovereign laws enacted by various governments originated with some strong ethical foundations in order to protect people, these were watered down in recent centuries by the power of the moneyed class, which includes modern banks. The result is that some of the high moral edicts that governed the financial behavior of human societies are no longer taken into consideration in the design, marketing, and sale of financial products. There has been a call in recent years to go back to human ethics, since the world has witnessed how new and untested financial innovations could wreck the wealth of societies. It is a call for finance that favors human beings against the interests of the moneyed class.

For example, in the environment of close to zero percent interest rates that has prevailed since 2010, banks are now going back to the old bad habit of offering bets on future events to entice bank depositors to bring their savings to the banks with a "bet." If the bets are won, the contracted low interest rate will be increased by the banks. Of course, the experience of depositors in the United States in 1994-2008 was that bets like these made lots of people lose money. Although such bets are just another form of gambling, bank regulators have yet to move aggressively to outlaw these contracts being offered by regular (versus investment) banks that cater to the common person with little savings.

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