Sharī’ah compliance in ṣukūk issuance: Addressing challenges and enhancing trust

Abstract

This study aims to explore the primary issues related to adherence to Sharīʿah compliance in ṣukūk issuances, including asset-based versus asset-backed structures, purchase undertakings, and varying Sharīʿah interpretations, while assessing how these challenges impact investor confidence and the market’s sustainability. Improved transparency, standardisation, and innovative ṣukūk models are essential for enhancing ethical investment appeal and sustaining growth. This study uses document analysis to examine Sharīʿah compliance challenges in ṣukūk issuances by reviewing regulatory frameworks, financial reports, and academic studies. This approach, commonly used in social sciences, provides valuable insights into compliance practices while addressing challenges such as potential biases and limited access to documents. The findings reveal significant concerns, including the resemblance of some ṣukūk structures to conventional debt instruments, inconsistencies in Sharīʿah rulings, and the use of controversial structures such as Tawarruq. This writing combines established document analysis methods with a focused examination of Sharīʿah compliance in ṣukūk issuance, presenting original insights into the specific challenges faced by Islamic finance. By linking theoretical principles with practical steps in document analysis, it offers a unique application of these methods to the evolving ṣukūk market. The study is limited by its geographic focus on Malaysia and its reliance on expert opinions from within a specific cultural and religious context. Consequently, the findings may not be generalisable to other countries or contexts with different socio-economic or religious frameworks. It highlights the necessity of fostering strong partnerships between key stakeholders to successfully implement this model, potentially serving as a framework for similar initiatives in other regions.