The remarkable rise and subsequent sharp drop in sukuk (Islamic bond) sales have been the issue of many debates of late. The sales were doubling in volume year on year since 2004, but 2008 has witnessed a 50 per cent drop. The ongoing unrest in the financial markets worldwide has been blamed for this by some. However, the February ruling of Shaikh Muhammad Taqi Usmani, head of Shari’ah committee of the AAOIFI (Accounting and Auditing Organisation for Islamic Financial Institutions), was widely accepted as the main reason. Shaikh Usmani labelled a substantial number of sukuk non-compliant with Shari’ah and pointed out that many sukuk followed Shari’ah principles only in form, but not in substance.
Since then, a series of steps to rectify this discrepancy have been taken by AAOIFI and other international standard-setting organisations. The most recent prudential standards regarding sukuk have been issued by the IFSB (Islamic Financial Services Board). They focus on the capital adequacy requirements for sukuk securitisation and real estate investment, and will be published by the end of 2008.
The regulation was approved by the IFSB Council during its 13th meeting, recently held in Dubai. It was chaired by H.E. Dr Shamshad Akhtar, governor of the State Bank of Pakistan and chairperson of the Council, and attended by a number of high profile members, including the president of the Islamic Development Bank (IDB).
In addition to new sukuk guidelines, the Council also issued guiding principles of governance for Islamic collective investment schemes (also available by the year-end).