In Do the Type of Sukuk and Choice of Shari'a Scholar Matter?, a working paper* from the International Monetary Fund (IMF) released in August 2014, authors Christophe Godlewski, Rima Turk, and Laurent Weill study a sample of 131 sukuk from eight countries from 2006 to 2013 and find both criteria do indeed matter.
Some observations from the analysis include:
- The average coupon is above 4%, maturity is 8 years, and the average amount issued is US$1,270 million with a large standard deviation.
- An average of three scholars certify an issuer’s sukuk.
- On average, half of the team of scholars is from the same country as the issuer.
- A typical scholar certifies on average 24 sukuk per year, or almost 75 issues over three years.
- Issuing firms have issued on average more than 11 bond issues.
The authors observe that sukuk in the musharakah and mudarabah formats, which are partnership contracts in which the financier and entrepreneur share profits based on pre-agreed ratios but also the losses that are proportional to their contributions (financial or physical) to the partnership, are not as popular. "Ijarah is a debt-based instrument that is not based on profit and loss sharing principles; hence, it does not suffer from the possibility of attracting borrowers of poor financial condition as would a musharakah instrument," the authors suggested.
A similar positive impact was observed with sukuk that had been certified by prominent shari’ah scholars from the same country as the sukuk issuer. In more than half of the sample, at least one scholar is from the same country as the issuer, the authors observed.
"Our finding provides some evidence that high compensation for reputable shari’ah scholars certifying sukuk may be justified on the grounds of better valuation of issuing firms," the authors said.
*Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. The views do not necessarily represent the views of the IMF or IMF policies.