Perpetual Ṣukūk: A Preliminary Sharīʿah Assessment

Abstract

Perpetual ṣukūk are among the latest innovative instrument in the Islamic capital market. The introduction of this instrument has been driven by its commercial advantages as well as new regulatory requirements particularly in the financial sector. Perpetual ṣukūk have distinctive features compared to common ṣukūk for the instrument carries no maturity date and is typically treated as equity (from an accounting standpoint) rather than debt. While this innovation is commendable, it deserves Sharīʿah consideration of some of its structural and operational aspects. This paper attempts to analyse selected issues and highlight justifications provided by respective Sharīʿah advisers in approving perpetual ṣukūk. The paper begins with providing an overview on perpetual ṣukūk, its common features and basic requirements and its specific characteristics when issued as Additional Tier 1 (AT1) capital instruments by financial institutions to meet capital requirements under Basel III. Subsequently, the paper illustrates selected structures of recent perpetual ṣukūk issued in Malaysia and other countries. Finally, it highlights some potential Sharīʿah issues that might arise and deliberates upon them from the Sharīʿah perspective. The discussion and analysis of most of the Sharīʿah issues in this paper are, however, neither conclusive nor exhaustive.