Shariah non-compliance risk and its management techniques: empirical evidences in selectedwakalah sukukdocuments issued in Malaysia jurisdiction

Noor Fadhzana Mohd Noor

Qualitative Research in Financial Markets, 2024, vol. 16, issue 4, 803-829

Abstract: Purpose - This study aims to investigate the extent of Shariah compliance inwakalah sukukand Shariah non-compliant risk disclosure in thesukukdocuments and to analyse the risk management techniques associated with the disclosed risks. Design/methodology/approach - This study uses qualitative document analysis as both data collection and analysis methods. The document analysis acts as a data collection method for 23wakalah sukukdocuments selected from 32 issuances ofwakalah sukukfrom 2017 to 2021. These sukuk documents were selected based on their availability from relevant websites. Document analysis, both content analysis and thematic analysis, were used to analyse the data. Codes were grounded from that data through keywords search of Shariah noncompliant risk and its risk management. Besides these, interviews were also conducted with four active industry players, i.e. two legal advisors ofwakalah sukuk, awakalah sukuktrustee and asukukinstitutional issuer. These interview data were analysed based on categorical themes, on the aspects of the extent of Shariah compliance insukuk, and the participant’s views on the risk management techniques associated with the risks or used in thesukukdocuments. Findings - Overall, the findings reveal three types of Shariah non-compliant risks disclosed in thesukukdocuments and seven risk management techniques associated with them. However, the disclosure and the risk management techniques can be considered minimal in contrast to the extent of Shariah compliance in asukuk, i.e. Shariah compliance at the pre-issuance stage, ongoing stage and post-issuance stage. On top of these, it was also found from the interviews that not all risk management techniques are workable to manage Shariah non-compliant risk insukuk. As a result, these findings suggest rigorous reviews of the existing Shariah non-compliance risk (SNCR) disclosures and risk management techniques by the relevant parties. Research limitations/implications - Sukukdocuments used in the study are limited to corporatewakalah sukukissued in Malaysia. Out of 32 issuances from 2015 to 2021, only 23 documents are available in relevant website. Thus, Shariah non-compliant risk disclosure and its risk management techniques analysed in this study are only limited in those documents. Practical implications - The findings of this study suggest rigorous reviews on the existing Shariah non-compliance disclosures and risk management techniques. Other than these, future research in relation to uncommon risk management clauses, i.e. assurance, Shariah waiver and transfer of risk, are needed. Originality/value - The insights presented in the analysis are of importance tosukukissuers and thesukukdue diligence working group in enhancing the sukuk Shariah compliance and Shariah non-compliant risks disclosure and towardssukukinvestors, in capturing and assessing Shariah non-compliant risks in asukukand to assist them to make informed investment decisions. More importantly, this study has found few areas of future study in relation to SNCR disclosures and SNCR risk management techniques.

Keywords: Sukuk risk; Sukuk risk management; Disclaimer; Waiver; Shariah waiver (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eme:qrfmpp:qrfm-10-2022-0171

DOI: 10.1108/QRFM-10-2022-0171

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