SHARIAH-BASED
RISK MANAGEMENT IN MUDARABAH SUKUK-PART 1
Modern day sukuks are generally
structured based on conventional bond models where capital protection and
profit guarantee are normally provided with the provision of security or
collateral terms: as if the structures are based on debt transactions where
creditors are fully protected as part of the so called credit enhancement
process involving a lot of provisions under positive covenants and negative
pledges normally used in credit/loan/bond documentation. Mudarabah sukuk on the
contrary are not supposed to be debt-based instruments: rather they are based
on agency in the context of the management company being the investment or
business agent of the capital provider or investors. There is no creditor-debtor
relationship here that warrants the above-mentioned credit enhancements
normally employed in conventional lending contracts for debt securities. Since
Mudarabah sukuk do not involve any debt contract between the issuer and
investor, the kind of protection available to the investors here is not on the
basis that the capital provider is a creditor or lender but rather a principal
(muwakkil) in an agency contract. Hence different approaches are needed to
protect the interest of such a principal in the context of the mudarabah
investment contracts.
