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Islamic Sukuk Default and Issues in Their Resolution: The Case of Villamar Sukuk

Salman Ali

No 2016-5, Working Papers from The Islamic Research and Teaching Institute (IRTI)

Abstract: Several high profile Sukuk have defaulted in recent years. The phenomenon has created upheaval in the Sukuk market and affected its development and investors’ confidence. Smooth resolution of default and bankruptcy is quite important for the financial instruments and their markets. The purpose of this study is to understand the nature and causes of the difficulties encountered in quick settlement of defaulted sukuk. It also aims to identify the Shari’ah issues faced in the resolution and settlement process. Specifically, we focus on Villamar Sukuk. It was a musharakah sukuk launched in 2008, after the issuance of the 2007 AAOIFI revised Shari’ah standard for sukuk. The Villamar sukuk was unique in that it was a musharakah sukuk without the buy-back promise, thus complying with this aspect of the AAOIFI’s revised sukuk standard. The paper analyzes: How a musharakah sukuk can ever default? What operational and structuring factors cause delay in default resolution of a musharakah sukuk? And, what lessons can be learned from this episode?

Keywords: Sukuk; Default; Insolvency; musharakah Sukuk; Shari’ah-Compliance (search for similar items in EconPapers)
JEL-codes: G10 G33 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2016-04-01
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