Default risk as a factor preventing companies from entering the sukuk market

Madina Kalimullina () and M. Kabir Hassan
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Madina Kalimullina: National Research University Higher School of Economics

Risk Management, 2022, vol. 24, issue 4, No 2, 298-326

Abstract: Abstract The international sukuk market is represented by a limited number of issuers. One of the factors preventing companies from entering the market is, apparently, elucidating the true default risk of the potential sukuk issuance and related risk-minimization tools, such as guarantees and ratings. The article focuses on the default risk the potential sukuk issuer should consider. The research methodology includes a comparison between the theoretical maxims of sukuk, described by scholars and standard setters, and the existing market practice. To evaluate the potential impact of defaults and near defaults on the issuer’s reputation, a poll was conducted among the market practitioners. The results show that sukuk largely continue to imitate the bond market as per the default risk, and the path dependence of the industry on the ill-formed sukuk dominating the market impedes the revert to the initial concept of sukuk as an investment instrument. Certain steps are suggested for a potential issuer to minimize the default risk.

Keywords: Sukuk defaults; Islamic finance; Default risk; Sukuk market impediments; Sukuk vs. bonds (search for similar items in EconPapers)
JEL-codes: G15 G23 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1057/s41283-022-00096-9

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