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Ṣukūk Default and Issues in Their Resolution: The Case of Villamar Ṣukūk

In: Developments in Islamic Finance

Author

Listed:
  • Salman Syed Ali

    (Islamic Research and Training Institute (IRTI), IDB)

Abstract

Several high-profile Sukuk 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 ShariahShariah issues faced in the resolution and settlement processes. Specifically, we focus on Villamar Sukuk. It was a Musharakah sukuk Musharakah Sukuk launched in 2008, after the issuance of the 2007 AAOIFIAccounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) revised Shariah standard for sukuk. The Villamar sukuk was unique in that it was a Musharakah sukuk without the buyback promise, thus complying with this aspect of the AAOIFI’s revised sukuk standard. The paper analyzes the following: How a Musharakah sukuk can ever default? What operational and structuring factors cause delay in default resolution of a Musharakah sukuk? The paper derives several lessons from this episode and proposes regulatory and governance measures that can improve resolution of sukuk default and expedite their settlement.

Suggested Citation

  • Salman Syed Ali, 2017. "Ṣukūk Default and Issues in Their Resolution: The Case of Villamar Ṣukūk," Palgrave CIBFR Studies in Islamic Finance, in: Syed Aun R. Rizvi & Irum Saba (ed.), Developments in Islamic Finance, pages 65-88, Palgrave Macmillan.
    • Handle: RePEc:pal:pcichp:978-3-319-59342-5_4
    DOI: 10.1007/978-3-319-59342-5_4
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    More about this item

    Keywords

    Sukuk; Default; Insolvency; Musharakah sukuk; Shariah compliance;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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