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Sukukization: Islamic Economic Risk Factors in Shari’ah View

Alsayyed, Nidal and Farhan, Malik (2010): Sukukization: Islamic Economic Risk Factors in Shari’ah View.

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Abstract

Despite the Economic closeness of overall concept, Sukukization (Islamic Securitization) is not equal to “Securitization” as it is known in its conventional sense. Securitization, generally relates to the converting of loans of various sorts into marketable securities by packaging the loans into pools and then selling shares of ownership in the pool itself. Sukukization, on the hand; refers to, Islamic Sukuk Investment (as defined by AAOIFI) are certificates of equal value representing undivided shares in ownership of tangible assets, usufruct and services. The development of innovative Economic financial solutions in the Muslim world has been dormant for centuries. It is only recently, since the early 1970s that significant work that has been done in the field of Islamic Capital Market. In order to take benefit from Western financial structures, care must be taken to make sure that the concepts are acceptable by Shari’ah. The West has had significant success in linking the End-Investor (Excess Capital) with the most optimal user of this Excess Capital; be it the Stock Market, Debt Market or the Securitization structures, they all serve the purpose of linking Capital with its most optimal (on a risk-adjusted basis) user. It must be kept in mind, that even though the West has had more success than the Muslim world in implementation of a financial system, it has been plagued with constant cycles of boom and bust. The most recent financial markets crisis has again opened the discussion for the need of structural changes to the current financial models/instruments in place. Most commentators have stressed for the need of more regulation whereas the stress should be on making changes to the structural features of the financial instruments. An in-depth discussion of the financial system is beyond the scope of this article and for now the focus will only be on the Islamic Securitization structures (Sukukization) for the housing capital market and the relevant Economic factors.

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