The Islamic financial industry witnesses nowadays a wide spread and flourishing this period of time, the Islamic financial institutions which are compliant with the shariah principals have spread in many Islamic and western countries and so many banks and conventional financial institutions have headed for the partial or total transformation to Islamic, and can be said here that what the Islamic banks and institutions grant from various investments tools had a big influence and the major role in its success and spread.
 
One of the most famous tools is the “Sukuk” whose circulation volume, according to the economist, will reach in 2015 to $3 trillion.

The first Global Sukuk Conference which was held in Manamah –the capital of the financial industry- on 18-19^th, March 2008, emphasizing the perch that the Sukuk reached and the hard try to organize the dealing with this tool that spread variously  especially after its steadiness during the Global Financial Crisis.

General Brief:

The Sukuk is not a modern investment since the first issuance of Sukuk was in Malaysia in 1995 to build an electricity station with $350 million value. Sheikh Abdullah Saleh Kamel – the chief and the founder of the Saudi based Dallah al Barakah- the first person to issue Sukuk at the early nineties, and at the beginning of the third millennium the Sukuk market witnessed a rapid spread and it is still growing.

What is “Sukuk”?

Sukuk: means a security certificate, and it is financial papers which have an equal value that represent a property in the capita, debt or assets that the institution issues in the names of the people who are subscribing in them in return to paying the bill value, and it invests in the outcome of the selling itself or in paying to the other to invest on its behalf and it works on ensuring its circulation. The subscribes take parts in the results of this investment according to the conditions for each issuance, thus, it is a way to finance the investment according to a special formula from the Islamic investment formulas.

It can be also said that the Sukuk is a tool of investing that is developed to be an alternative to the debt (Bonds) to be beneficial in financing investments with accordance to the Islamic shariah principals with its ability for circulation.

There are some rules that organize the Islamic Sukuk:

1-    The Sukuk is a property and a common share in the project which the Sukuk were issued to finance or to establish, consequently, all the rights and the owner’s financial behaviors in this property.

2-       The Sukuk is able to be circulated and its types should be taken into consideration, and these  types are:

a-     Money: it is submitted to the rule of cash money.

b-    Debts: it submits to the rules of dealing with debts. Mixed of money, debts, objects and interests: and is circulated according to its price or the price that is agreed on in one condition is that most of the goods are objects.

c-     Assets only: these are circulated according to its price with one condition which is the Sukuk value security.

3-    It is forbidden for the issuance of Sukuk to be accompanied with the condition of the Sukuk value security.

4-    It is forbidden for the issuance of the Sukuk to be accompanied with the condition of the divided profit or the profit that is related to the capital except for Sukuk Murabaha or al Ijara.

5-      It is forbidden to issue the Sukuk with the commitment to buy from the source, but the issuance of Sukuk to include a promise of buying.

There are more than one tool to issue the Islamic Sukuk  among them : the mobilization of savings, the facility of the flow of funds for the investments, developing the forms of the Islamic Financial tools, widening the base of the financial stock market, merging the Islamic countries’ Economics  ,the Sukuk is considered as an opportunity to exp[lain the idea of the Islamic investment and there are other ways to finance rather than the Interest price, it depends on risk and sharing and it can be applied on the real ground, and this what has been rejected for many years since the saying “ No economy without banks, and no banks without usury” was common among people and the financial experts. It is also an opportunity for the Islamic banks to practice its activities on a high level since they are managing most of the Sukuk subscriptions transactions.

The Sukuk differ in their due date (Short, medium and long) or according to their formulas (Mudarabah (speculation), Musharakah (partnership), Ijara, Salm, Istisna’, Murabaha).

Types of Sukuk:

The Sukuk can be classified according to its formula:

1-    Sukuk Al Mudarabah ( speculation): these are financial securities that are presented to be subscribed on the basis of managing the work by the company on the basis of Mudarabah so the Mudarabah represents the investor and the Sukuk owners are the owners of the capital, this type of Sukuk has more than one kind:

a-     Trading Speculation Sukuk (Sukuk Mudarabah): trading the goods and the Sukuk here represent common share in the bought goods.

b-    Industrial Speculation Sukuk: buying primary materials and industrializing them these Sukuk represent a common the primary materials and in the industrialized goods, to speculating properties.

c-     Agricultural Speculation Sukuk: buying the agricultural equipments and the needed tools and performing the agricultural projects and these Sukuk represent a common share in the materials and the products.

An example of Sukuk Al Mudarabah (Speculation Sukuk) is the Sukuk issued by Bahrain based Shamil bank with the value of 360 million Saudi Riyal through Al Ahsa’.

2-    Sukuk Al Istisna’: these are documents that are equal in value issued to be used in the subscription resultants in industrializing goods; the product becomes possessed by the Sukuk possessor.

An example of this kind of Sukuk is Sukuk Al Durrah in Bahrain; it is going to finance the reclamation and the basic infrastructure for the first stage of establishing the largest residential and entertainment city on the world class and in a cost that reaches $1 billion.

3-    Sukuk Al Murabaha: these are documents with equal value issued to finance buying Murabaha goods, the Murabaha good becomes possessed by the Sukuk possessor.

An example of this kind of Sukuk is what Arcapita bank has done when organizing Sukuk supported by the Multi –currency Murabaha (by mandating Bayrish Hebo bank, Standard BLC bank and West LBAG-London).

4-    Sukuk al Musharakah (Partnership): they are defined as documents with equal value that are issued to be used in establishing a project or financing an activity on the basis of partnership, and this project becomes possessed by the Sukuk possessor, Sukuk Al Musharakah  are circulated on the basis of companionship or the basis of Mudarabah.

An example of this kind of Sukuk is the Emirates Airway Sukuk with the value of $550 million for developing and establishing a new building for the company.

5-    Sukuk al Ijara: these are Sukuk with common share in leased objects possessed by the Sukuk possessor, the leasing return is distributed on the possessors according to their shares and properties, and these Sukuk are circulated and values by its value in the market.

Some kinds of Sukuk that are related to Sukuk al Ijara:

-         Property benefits Sukuk: these are documents with equal values issued by the possessor of the objects existed to lease its benefits, and fulfilling its revenues from the subscription resultants and it becomes a possessed benefit by the Sukuk possessors.

-         Sukuk of the domination of the existed interests:  these are documents with equal value issued by the benefits possessor that exist in order to re-lease it and to fulfill its revenues from the subscription resultants, then it becomes a possessed benefit by the Sukuk possessors.

-         Sukuk of Ownership of  services by specific party or (by a party described in the disclosure): these are documents with equal value issued to provide a service from a specific party and fulfilling the payment from the subscription  resultants and these services become possessed by the Sukuk possessors.

An example of this kind of Sukuk is what Dar Al Arkan has done to develop the real estate sector in Saudia Arabia by listing it in the Bahrain stock market with the value of $1 billion.

6-    Sukuk al Salam: these Sukuk represent a common share in the Salm capital to finance buying goods that are received in the future, then they are sold to the clients and the earnings are the revenues resulted from the selling, these Sukuk are not circulated until the capital is transformed into goods and this is after receiving and before selling it, theses Sukuk represent at that time a common share in these goods.

The practical example of Sukuk al Salam is what the Bahraini Government has done to choose the aluminum to be the basic assets to a salam contract and this by delegating the Bahrain Islamic Bank to give promises of selling the aluminum to the buyer with a specific future date and prepayment in return. There are other kinds of the Sukuk related to the agricultural banks:

Sukuk Al Muzara’a: these are documents with equal value issued to use the subscription revenues in it in financing a project of Muzara’a, and the Sukuk possessor have shares in this crop.

Sukuk Musaqah: these are documents with equal values issued to use the subscription profit in it in watering the fruit trees and taking care of these trees on the basis of the Musaqah contract, the Sukuk possessors have a share from the fruits.

Sukuk Al Mugharasah: these are documents with equal value issued to use the subscription in it in planting trees on the basis of the Mugharasah contract; the Sukuk possessors have shares in the land and the plants.

Sukuk characteristics:

There are some characteristics that distinguish the Sukuk from other investments tools, these characteristics help in spreading the Sukuk rapidly, the most important characteristics are:

1-    The Sukuk are documents that are issued on behalf of the issuer or the owner with equal valued categories to prove the right of the owner in all what it represents of rights in the assets of the properties issued on its return.

2-    Theses Sukuk represent a common share in the assets possession or the revenues or some services needed, and it doesn’t represent a debt or a loan on its source to the Sukuk holders.

3-    They are issued with a legal contract with shariah rules between its parties, and the way they are issued and the way they are circulated and their revenues.

4-    The Sukuk circulation should be on the basis of the conditions and the shariah rules in order to circulate the assets, the revenues and the services they represent.

The Sukuk Risks:

Although the previous characteristics, it should be taken into consideration that the differences between Sukuk and the conventional debt bonds, and these differences cause some risks that should be studied and measured in a n accurate scientific way including the seek to cover these risks with the suitable ways that are in compliance with the Islamic shariah.

The risks that the Sukuk might face vary according to the variation of the kinds of Sukuk and their resources. For example, the risks caused by the Murabaha Sukuk differ from the risks caused by the Musharakah Sukuk or Sukuk Al Istisna’ or al Ijara and so forth, these risks cab be outlined by the following points:

First: The violation of the Islamic Shariah Rules:

Since the Sukuk is a financial tool that is based on the Islamic shariah rules, its violation to these rules in any period of the Sukuk age leads to damages that differ according to the differences between the violations and their degree of danger.

So, from the invalidity of the sukuk to the corruption of some conditions. For example, when the Sukuk consist of the debts of Murabaha and leased assets, then the debts percentage shouldn’t go higher than 33% from the Sukuk components for the whole age of the Sukuk so they can be circulated. In case the debts go higher than this percentage, the Sukuk can’t be circulated and therefore the Sukuk become poor in their liquidity, or when the possession of the Sukuk is a fictitious one.
 
No doubt that this formalism invalidates the possession contract and therefore what is built on falseness is false so the contract is false. The images of violating the Islamic shariah rules are many and can’t be counted because every form of the Sukuk forms has its own shariah rules and percepts whose violation is considered  from the risks that its happening and the way it should be prevented or decreased and the ways of handling it should be studied carefully.

 Second: Operational Risks:

The Islamic Sukuk that can be circulated are based on assets, and the profit of these Sukuk is resulted from these assets, so the operational risks of these assets should be considered and studied carefully; for example, we know that the leasing profit of Sukuk Al Ijara is the profit of the Sukuk, so if the revenues of the leased property that formulate Sukuk Al Ijara are interrupted or stopped, then the lessee shouldn’t pay the rental and therefore the Sukuk will have no revenues. From this we can see that Sukuk Al Ijara that are based on the property are less effected by the risks of losing the profit because of the interruption or stopping the benefit from the Sukuk that are based on vehicles, factories, planes or ships. Moreover, the Sukuk holders bear the possible risks resulting from the possession of these assets like the environmental damages resulting from the factories, ships and the other risks connected with each asset separately.

Third: The legal risks:

Because of the fact that many systems and legislations in many countries are made and put by human beings which makes it in many of its terms violate the Islamic shariah principals , there might be an opposition to happen between these systems and laws and the the Islamic Shariah laws. Also the shariah laws are neglected in the trial.

The Volume of Sukuk:

The Islamic Sukuk achieved big and special leaps In terms of revenue and it gained the interest of the Islamic and Western market. These issuances were supervised by a shariah superintendence that guarantees the safety of the procedures and the implementation regarding its compliance with the Islamic shariah principals. The Global Credit Crisis didn’t affect the Sukuk issuance, although a new report issued by Moody's international credit rating expected a growth in the Sukuk issuance volume between 30-35% during 2008.

The report confirmed that the Sukuk issuance overall in the Middle East, North Africa and Asia reported a growth by 71% in 2007 since it reached $32.65 billion.

The number of Sukuk also rose from 109 in 2006 to 119 in 2007.

The average volume of the deals and the transactions rose to $269.8 million in 2007 from $175 million in 2006 as the following table shows:

The biggest share of Sukuk was issued in the financial services sector, and it reached 32% from the total volume. The real estate sector comes in the second place with an average of 25% and the energy and the services sectors with the average of 21%.

Sukuk Al Musharakah came in the first rank regarding the issuance volume ($12.9 billion) followed by Sukuk Al Ijara ( $10 billion).

While Sukuk Al Ijara came in the first rank regarding the issuance volume (54 issuances) in comparison to the Sukuk A l Musharakah (22 issuance) according to the countries, Pakistan showed a rapid growth of the Sukuk marked in 2007 with an issuance volume of 20 while the number of its issuances in 2006 was no more than 4. Also there is a big increase in the Sukuk number worth about $1 billion.

However, in South East Asia there was a decrease in the issuance of Sukuk and this primarily due to the decrease in the issuance of such Islamic financial stocks by the Malaysian companies in Malaysia. In spite of this, Malaysia still the first country in issuing Sukuk regarding the quantity and the value since its value in 2007 reached $25 billion.  

 the previous table shows the growth in the Sukuk issuance from 2000 till 2006. In 2000 the total volume of the issuance of Sukuk was $336 million without sovereign Sukuk in the market. We can see from the previous table that the total volume of the Sukuk issued in 2001 was only $336 million and within a short period of time (from six years) the total volume of the issuance of Sukuk exceeded $27 billion. The growth that was achieved in 2003 was the best with a value of 483% and in 2006 the total volume was also 122%.

This is globally, what about the gulf?

The reports confirmed that the total issuance of GCC from Sukuk reached $19 billion in 2007.

The United Arab Emirates was in the first rank with the highest percentage (58% from the total issuance) followed by Saudi Arabia (30%) then the Kingdom of Bahrain (6%), Kuwait (4%) and lastly Qatar (2%).

According to the number of the issuances, the total number of the issued Sukuk was 50 issuance and Bahrain had the lion share in this issuance with (28 issuance) followed by the United Arab Emirates (12 issuance) then Saudi Arabia (5 issuances) then Kuwait (4) and lastly came Qatar with only one issuance.

Experts and specialist in the Islamic Finance field confirm that the United Arab Emirates succeeded within a very short period of time that is no more than six years in making important changes in the global Sukuk issuance market, the matter which enabled it to be crowned on the throne of this industry during 2007 as a global center for Islamic Sukuk issuance and extorting the throne of the top from Malaysia which was considered the first in the Islamic Finance field.

Future Expectations:

Rating agencies and global institutions expected a growth in the Sukuk issuance to reach $3 trillion in 2015, the flowing are some of the expectations stated by the rating agencies:

Moody’s Investor Service stated in a report that the value of the Islamic Sukuk market will reach $200 billion by 2010and it is expected to see a growth with a percentage of 35% in 2008.

The global ratings agency (Standard and Poor’s) expect non-Islamic countries to make an advanced progress in issuing Sukuk in the next phase, especially Britain and Japan since the British government declared in November 2007 that it seeks for consulting regarding issuing Sukuk with the English pound. Also the Japanese Bank of International Cooperation declared that it intends to issue Sukuk with a value that is between $150-200 million in May 2008.

In the gulf side, Morgan Stanly institution refers to the fact that 12 issuance of Sukuk are coming with a value that reaches $9.93  million, it is expected to be issued during the first half of 2008 and it includes issuances with $1 billion for the benefit of Dubai Electricity and Water Authoroty , and another one with a value of $2 billion for the benefit of Ras Al Kaimah Real Estate ,as Amlak for Finance plans to issue Sukuk with the value of $260 million along with many issuances the value of each is $1 billion for the benefit of Qatar for Fertilizers, Kuwaiti Abyaar Real Estate , Doha Bank and Bahrain Islamic Bank.

 Abu Dhabi government is waited to finance a part of the Khalifah port and the free zone whose value is expected to reach $10 billion (36.7 billion Dirham) through issuing Sukuk.

The Islamic Sukuk market is expected to witness a big development during the nest stage through financing the infrastructures projects which are planned by the Islamic and the Arabic area especially in the energy and the infrastructures fields in common with what happened with financing Dubai Airport with $1 billion, and Dubai ports with $3.5 billion and the Qatari government with $700 million. The Sukuk contribution in financing the energy fields in Qatar and Kuwait by 2010 about $60 billion and $64 billion successively.

The Saudi market witnesses a development in this field. However, it is noted that most of them are directed to financing the Real Estate sector, Aircraft leasing, bonds markets and some energy and infrastructure projects.

Reactions and recommendations:

Because of the rapid and wide spread of the Sukuk within a very short period of time, it faces many reactions and there were some opinions and many conferences were held and the last one was the Global Conference of Sukuk which was held in Bahrain where many economical experts and financial institutions managers talks and discussed the issue of Sukuk. Some of the speakers are: Abdulhaq al Qafsi, the financial experts and the Islamic Financial consultancy manager, who predicted that the Islamic Sukuk will be the future of the Islamic economy in general emphasizing the possibility of the Sukuk growth during the next five or ten years with the increase in the demands for the Shariah compliant products.

Moreover, Yussuf  Mal Allah, the vice-chief executive in Investment Dar, notified that he looks to the Sukuk that it is the best way to enlist savings and collecting money to finance development projects, especially infrastructure projects.

From his point of view, Walled Al Qaddomy ,Vice executive president  in Top Expo group that the Sukuk became the most attracting Islamic financial tool to the Arabic companies both the Islamic and the foreign ones, and this according to the increasing demands for Sukuk in the global markets, especially that the Islamic Sukuk appeared as one of the innovated Islamic tools during the few past years.

The Euromoney-Kuwait conference highlighted the importance of Sukuk as one of the financial tools that comes as an alternative to the bonds according to the shariah Islamic principles.

The manager of the international investment at Kuwait Finance house, Emad Al Manie’ said during the conference that the Sukuk is considered as a financial product that comes as an alternative to the conventional bonds, and many others see that this product plays a major role in supporting development plans and expanding the plans of governments and companies in the world within a very short period of time especially in during the extensive demands for the Islamic financial product and services in general and the Sukuk in specific.

He added that the experts expect the Sukuk to become one of the official tools in the financial politics after the focusing on finding legislative environment for issuing Sukuk by the central banks whether these Sukuk were sovereign or conventional ones from companies because of its importance as a financial tool that is distinguished by being supported by real assets and it is less risky, therefore it is a tool that encourages the investors and it is an important source for pumping money in the projects.

Muhammad Faiq , an insurance analyst in Standard & Poor’s, said that “ the experience with the debt tools like the financial stocks supported by the bond as well as the current market indicators indicate that the creativity and markets demands for Sukuk will continue till the Sukuk develop to become one of the existing categories that are circulated widely” he also said “ I addition to this, the financial institutions will compete to make advantage of this part of the market and at the end it works on filling the gap  between Sukuk and the conventional financial tools”.

Standard &Poor’s eliminated the recession of the growth of the Sukuk sector under the auspices of the arguments about its compliance with the Islamic Shariah highlighting that this argument will find more standards and encouragement for creativeness in this sector. 

The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI)

The shariah board in The Accounting and Auditing Organization for Islamic Financial Institutions after studying the issue of issuing Sukuk in three conferences, the last was in February 2008 the following:

First:

 The circulated Sukuk should represent the possession of the Sukuk holders, with all its rights and obligations, in real assets that can be possessed and sold legally, whether they are assets, interests or services and the Sukuk manager should prove the assets  possession transferring in the documents and not to keep it in his assets.

Second:

It is prohibited for the circulated Sukuk to represent incomes or debts unless a commercial or financial body sold all of its assets or a fund with separate financial receivable and the debts related to the objects and the benefits that are unintended originally.

Third:

It is prohibited for the Sukuk manager, whether he is a speculator,  partner or investment agent, to be obligated to present the Sukuk holders a debt when there is a lack of the real incomes in comparison with the anticipated incomes, and it is lawful to the reserves to cover the lack of interest as possible providing that this suppose to be written in the subscription bulletin. And it is lawful to distribute the anticipated profit or to have a project financing on the Sukuk holders account.      

Fourth:  

It is prohibited for the speculator, the partner or the investment agent to tend to
 buy the assets from the Sukuk holders or their representatives with its nominal value.

When amortizing the Sukuk at the end day of the Sukuk it is lawful for the Sukuk buying to be on the basic of the assets net value or the market value or the fair value or with an agreed on value.

To be known that the Sukuk manager is an insurer to the capital with the market value in the cases of encroachment or in the cases of breaking the rules, whether he is a speculator, a partner or investment agent.

If the assets of the Musharakah Sukuk or Mudarabah or the investment delegation is only about rented assets, a rent that is ended up with possession , in this case it is lawful for the Sukuk manager to tend to buy these assets –when amortizing the Sukuk - with the payment bills for all the assets, since it represents the total value.

Fifth:

It is lawful for the renter to tend in the Sukuk Ijara to buy the rented assets when amortizing the Sukuk with its nominal value unless he is a partner, speculator or investment agent.

Sixth:

The Shariah boards mustn’t only issue a fatwa regarding the lawfulness of the Sukuk restructuring, but it must audit the related contracts and the documents and to observe the way they are applied, and to make sure thath the operation is compliant with all its aspects, stages , needs and provisions  with the Islamic shariah standards and to invest the Sukuk outcomes and what these outcomes turn into, like the assets which are one of the investment tools ,as the shariah board of the Islamic Financial Institution has recommended the decrease of the debts operations and to increase the real participation that is based on dividing the profits and the losses in order to apply the shariah purposes.

The board’s decision affects the Sukuk issuance:

Observers considered that these decisions increase the costs of issuing Sukuk, emphasizing that the Shariah Scholars have put conditions with their six decisions and these conditions are described as “ Harder than ever before” on the Sukuk sales after they have mentioned that most of the issuances of the stocks may be incompliant totally with the Islamic Shariah provisions. They added that the new rules of the Accounting and Auditing Organization for Islamic Financial Institutions that consist of 18 scholars will make it more difficult for the companies to issue Islamic debt bonds at the time when there is a lack of loan operations because of the Global Credit Crisis.

The Islamic bonds sales fell till 2008 to $856 million compared to $ 4.7 billion in the first quarter of 2007 according to Bloomberg’s data. Western bankers said that “the Sukuk decisions” are considered “a fundamental shift” to this industry and it will become the “annoying” matter to the seniors of the financial administrators who got used to the current structures. They continued that these decisions mean that the gulf and western banks started to “be a way from the guaranteed incomes and it goes towards structures that are distinguished by being less risky. About extent of the compliance of the current gulf Sukuk and the issued ones four months ago during the new developments, the economical observers said that these decisions do not prohibit the current deal and will not obligate the borrowers to restructure   the sold Sukuk.

In the same context, the rating agencies’ reactions differed, while Moody’s described these decisions by being “strict” according to its investors, Standards & Poor’s said that these decisions will enter a kind of uniting the standards of the Sukuk market and this is something that has been waited for. Thus, a page of “ legitimacy Suspicions “ will be turned over the curtains fall on the “ Sukuk crisis” which has continued for four months, and the Islamic bonds enter a new stage of development which leads to the Islamic Finance core.

The First Sukuk International conference recommendations:

At the end of the First Sukuk International Conference which was held in Bahrain in March 2008, the members recommended the following:

-         The necessity of facilitating the arguments between the bodies of the Sukuk industry especially between Shariah scholars and the central banks.

-         This industry should be prepared for more development and expansion in new markets through developing Sukuk products supported by assets in non- Islamic specialized boards.

-         This industry should boost its role in different sectors like the renewed energy sector.

-         The necessity of developing new Sukuk tools so that the Sukuk performance will be attached to the assets and this is similar to Tawarruq.

-         The markets need governmental issuance of the Islamic Sukuk with different maturity dates.

-         The necessity of issuing legislations that help the market to grow the Islamic Sukuk market.

-         To make coordination and workshops on the level of the shariah boards in the Islamic banks and financial institutions to reach to a formula that serves the issue of Sukuk restructuring.

-         The central banks are demanded for having a role in developing islamically acceptable products unlike the conventional products.

-         The Islamic Sukuk industry suffers from some weak points and lacks the creativity, and there is the absence of the secondary market.

Sukuk and the Credit Crunch:

The credit rating agency “Moody’s” said that the Islamic financial market doesn’t show any slowdown signs although the global credit crunch which introduced the global markets into an intense crisis since the summer of 2007 since the value of the Islamic finance reached about $700 billion, while the Islamic Sukuk shapes the fastest growing category in the markets.

Despite this optimistic image of the Islamic Sukuk market, it can’t be ignored that it might face some of the effects of the global credit shrinking in the last few months.

The Sukuk issuances were postponed because of the narrowness of the Borrowing and financing conditions in general at the time of the collapse in the American Real Estate market and the banks and financial institution exposure of the banks and the financial institutions on the insufficiency of the Real Estates in the American Market.

The Sukuk Legitimacy crisis:

The case of questioning the Islamic bonds and accusing it with being 85% incompliant with the Islamic Shariah interacted, after issuing some optimistic reports by some rating institutions about the destiny of the Gulf Sukuk Industry (long –term) in a step through which the rating institutions took in order to ensure its current and anticipated clients with the durability and the solidity of this market. Previously, the global rating agency “ Moody’s” confirmed that issuances  ( from the conventional and Islamic bonds) were not less than 10 billion and they are suppose to be collected in the last quarter of 2007 were postponed because of  the decline of the Global Market situations after the mortgages crisis which hit the American Market.

Sheikh Muhammad Taqi, the head of the shariah council in the board, said that about 85% of the issued Sukuk in the Arabic Gulf do not comply with the Islamic Shariah completely, and this is because of some terms about pledging to buy Sukuk with their nominal value, that matter which guarantees that any risks about the payment will be handled by the issuer of the Sukuk and not among the stocks issued and the assets which include them. Thus, giving a promise from this kind is considered as deviating the concept of sharing both the risk and the profits, which is the basic concept that the Sukuk lays on.

This fatwa was refuted by some shariah scholars and they explained that more than 50% of the Sukuk issued by Gulf companies are classified under Ijarah that is lawful, and what is questioned regarding its compliance with Islamic shariah is less than 40%.

This argument about these Sukuk didn’t come out of the blue but from reality in which the responsibility lies on the shariah boards which supervise the bodies which issue Sukuk, there are some different issuing bodies that submit to the same shariah boards until we find some shariah boards members can’t find the enough time to practice their supervisory role, since the responsibilities are multiple and widespread and the self can’t bear more than its capacity even if some people might accept that under pressure of the issuing bodies to make sure of the Sukuk compliance which  is the major disaster. The Sukuk’s validity according to the Islamic shariah is connected strongly with the validity of the shariah superintendence system which should diverge from the range of formalities to the focus on the core and the content so that the superintendence is not formal to make it compatible with the Islamic shariah but a real integrated superintendence that extends to the period prior to the issuance of these Sukuk and at the beginning of this is to participate in preparing and formulating the subscription newsletters, as well as the needed superintendence to issue and circulate these Sukuk to make sure of the compliance of the issuance and the circulation  with the Islamic shariah provisions that organize this in terms of the assets, whether they are in cash or debts, objects, benefits or a mixture of all of them , in addition to the later superintendence through reforming the legitimate side of these Sukuk periodically and to expose the strong points and supporting them , and the weak pints and fix them.

The damage of what has been issued from remarks about the legitimacy of the circulated Islamic Sukuk will not stop at what these remarks have issued about it but it will be reflected negatively on the major Islamic banking business locally and internationally. This will weaken the trust in the shariah boards and their decisions, in addition to the reluctance of many of the financial institutions and the western markets to expand in Islamic banking industry because of the absence of clear provisions and standards to this industry and its compliance to the opinions of the scholars who have unstable opinions.

In order for the Fiqh disagreement to affect the credit rating, we should decide whether it is considered from the risks or not in terms of its impact on the liquidity of Sukuk and in terms of its impact on the contractual obligation resulted from Sukuk?

From its impact on the liquidity of Sukuk, there is no doubt that the compliance of the Islamic shariah Sukuk is considered to be the first standard in the decision of the majority of the investors in investing in Sukuk and the other standards comes later. While in terms of its impact on the Sukuk bodies’ obligations, the rating agency (Standards & Poor’s) said in the report about the remarks on the issued Sukuk in Jan 12^th, 2006 that it will take into consideration the Fiqh disagreement when rating the Sukuk in case these Sukuk complied with the Shariah court specialization because the disagreement might lead to that the court will judge with the invalidity of these Sukuk.

With our supervision to the current situation of the Islamic Sukuk, we conclude that a big mutant in the issuance didn’t exist in the past, and we conclude a promising future to the secondary market of the Islamic Sukuk over the next ten years and it is expected to appear more new companies that organize the market work in a way that makes it an excellent tool to the treasury operations and exchanging operation, and the Sukuk as an alternative to the conventional bonds is a wide new development for the investors who seek for investing products that comply with the Islamic shariah. The development of this sector still needs sincere efforts from all the Muslim scholars in order to develop Islamic financial products and tools to serve the Islamic and the western community and each of those who are interested in the Islamic financial thinking for its justice and a clear contribution to achieve a balanced sustainable development.