MOHAMED ARIFF, PHD, a professor of finance at Bond University, Australia (and the University Putra Malaysia), is widely considered a specialist on Asian Pacific finance and Islamic finance. Formerly, he served as the elected president of the Asian Finance Association. He is a co-author of Investments and has authored or coauthored 33 other books. His scholarly articles have appeared in leading economics and finance journals.MEYSAM SAFARI, PHD, is a senior lecturer at SEGI University, a private institution in Malaysia. He won a prestigious scholarship from Khazanah Holdings. His scholarly research and teaching is in finance, although he has an engineering background.SHAMSHER MOHAMAD, PHD, is a professor at INCEIF University. After distinguishing himself in professional duties, he served as the dean of the faculty of economics. His teaching includes post-graduate finance subjects and supervising 25 doctoral students to completion.

• Preface xiAcknowledgments xiiiList of Tables xvList of Figures xviiAbout the Authors xixPART ONE The Foundation of Sukuk Securities 1CHAPTER 1 Introduction to Sukuk Markets 3Islamic (Participation) Debt Securities 4The Origin of Sukuk Structures 6Contemporary Sukuk Securities 9How Sukuk Securities Are Priced 10The Structure of This Book 12CHAPTER 2 Sukuk Securities: Definitions, Classification, and Pricing Issues 13Fundamental Principles 14Defi nitions and Regulations 20Classifi cation Based on Practices 22Conclusion 29CHAPTER 3 Pragmatic and Idealistic Approaches to Structuring Sukuk 31Shariah : The Basic Foundations of Islamic Finance and Sukuk 32Islamic Financial Principles 35Three Approaches to Islamic Finance 40The History of Sukuk 41Sukuk Structures: Pragmatic and Idealistic Approaches 44Conclusion 55CHAPTER 4 Contract Design and the Structure of Common Sukuk Securities Issued to Date 57Mudarabah (Partnership) 57Musharakah (Profit Sharing) 59Murabahah (Markup) 62Ijarah (Leasing) 64Salam (Futures) 67Istisna (Working Capital) 69Conclusion 70CHAPTER 5 Samples of Sukuk Issued 71Sukuk Simpanan Rakyat (Malaysia) 71Central Bank of Bahrain 73Khazanah Nasional Berhad (Malaysia) 74Qatar Central Bank 74Nakheel Sukuk (UAE) 75Mahan Airline Company (Iran) 75Conclusion 76CHAPTER 6 Contract Design and the Structure of Sukuk Securities Yet Issued 77Wakalah (Agency) 77Manfaah (Usufruct) 78Muzarah (Farmland Leasing) 78Musaqah (Orchard Leasing) 79Muqarasah (Tree Leasing) 79Conclusion 79CHAPTER 7 Sukuk Securities and Conventional Bonds 81Comparison of the Yields of Islamic Securities and Bonds 82Yield Curves 86The Granger Causality Test for the Yields of Sukuk and Conventional Bonds 90Conclusion 94PART TWO Sukuk Securities in Practice 97CHAPTER 8 Regulations with a Difference 99Regulating Sukuk 99Conclusion 105CHAPTER 9 Securitization, Trading, and Rating 107Sukuk Trading 107Sukuk Rating Methodologies 113Conclusion 123CHAPTER 10 Worldwide Sukuk Markets 125The Geographical Location of Sukuk Securities 128The Effect of Geographical Location on Contract Specifications 137Conclusion 139CHAPTER 11 Regulatory Issues for Sukuk Financial Products 141The Current Sukuk Market 142Regulation and Shariah Issues in the Current Sukuk Market 143Current Sukuk Structures 145Possible Developments and Implications 151PART THREE Payoff Structures and Sukuk Valuation 161CHAPTER 12 The Foundation and Principles of Islamic Finance 163Foundation 163Principles 164Conclusion 167CHAPTER 13 Cash-Flow Identification and Pattern Recognition for Theoretical Valuation Models 169Zero-Promised Regular-Payment Sukuk 169Fixed-Promised Regular-Payment Sukuk 171Variable-Promised Payment Sukuk 172Undetermined-Promised Payment Sukuk 174Conclusion 175CHAPTER 14 A Matter of Choice: Sukuk or Bond? 177The Economics of Conventional Bond-Based Funding 178World Markets for Conventional Loans 181The Case against Interest-Based Debt with No Risk Shared 182Are Sukuk an Alternative to Bonds? 185Conclusion 187CHAPTER 15 Challenges and Future Developments 189Valuation 189Liquidity 190Market Widening and Market Depth 191Cost of Issuance 191Variation in Schools of Thought 192Educating More Experts in Sukuk 193Regulatory Sufficiency 194Conclusion 195Bibliography 197Index 209

MOHAMED ARIFF, PHD, a professor of finance at Bond University, Australia (and the University Putra Malaysia), is widely considered a specialist on Asian Pacific finance and Islamic finance. Formerly, he served as the elected president of the Asian Finance Association. He is a co-author of Investments and has authored or coauthored 33 other books. His scholarly articles have appeared in leading economics and finance journals.MEYSAM SAFARI, PHD, is a senior lecturer at SEGI University, a private institution in Malaysia. He won a prestigious scholarship from Khazanah Holdings. His scholarly research and teaching is in finance, although he has an engineering background.SHAMSHER MOHAMAD, PHD, is a professor at INCEIF University. After distinguishing himself in professional duties, he served as the dean of the faculty of economics. His teaching includes post-graduate finance subjects and supervising 25 doctoral students to completion.

• Preface xiAcknowledgments xiiiList of Tables xvList of Figures xviiAbout the Authors xixPART ONE The Foundation of Sukuk Securities 1CHAPTER 1 Introduction to Sukuk Markets 3Islamic (Participation) Debt Securities 4The Origin of Sukuk Structures 6Contemporary Sukuk Securities 9How Sukuk Securities Are Priced 10The Structure of This Book 12CHAPTER 2 Sukuk Securities: Definitions, Classification, and Pricing Issues 13Fundamental Principles 14Defi nitions and Regulations 20Classifi cation Based on Practices 22Conclusion 29CHAPTER 3 Pragmatic and Idealistic Approaches to Structuring Sukuk 31Shariah : The Basic Foundations of Islamic Finance and Sukuk 32Islamic Financial Principles 35Three Approaches to Islamic Finance 40The History of Sukuk 41Sukuk Structures: Pragmatic and Idealistic Approaches 44Conclusion 55CHAPTER 4 Contract Design and the Structure of Common Sukuk Securities Issued to Date 57Mudarabah (Partnership) 57Musharakah (Profit Sharing) 59Murabahah (Markup) 62Ijarah (Leasing) 64Salam (Futures) 67Istisna (Working Capital) 69Conclusion 70CHAPTER 5 Samples of Sukuk Issued 71Sukuk Simpanan Rakyat (Malaysia) 71Central Bank of Bahrain 73Khazanah Nasional Berhad (Malaysia) 74Qatar Central Bank 74Nakheel Sukuk (UAE) 75Mahan Airline Company (Iran) 75Conclusion 76CHAPTER 6 Contract Design and the Structure of Sukuk Securities Yet Issued 77Wakalah (Agency) 77Manfaah (Usufruct) 78Muzarah (Farmland Leasing) 78Musaqah (Orchard Leasing) 79Muqarasah (Tree Leasing) 79Conclusion 79CHAPTER 7 Sukuk Securities and Conventional Bonds 81Comparison of the Yields of Islamic Securities and Bonds 82Yield Curves 86The Granger Causality Test for the Yields of Sukuk and Conventional Bonds 90Conclusion 94PART TWO Sukuk Securities in Practice 97CHAPTER 8 Regulations with a Difference 99Regulating Sukuk 99Conclusion 105CHAPTER 9 Securitization, Trading, and Rating 107Sukuk Trading 107Sukuk Rating Methodologies 113Conclusion 123CHAPTER 10 Worldwide Sukuk Markets 125The Geographical Location of Sukuk Securities 128The Effect of Geographical Location on Contract Specifications 137Conclusion 139CHAPTER 11 Regulatory Issues for Sukuk Financial Products 141The Current Sukuk Market 142Regulation and Shariah Issues in the Current Sukuk Market 143Current Sukuk Structures 145Possible Developments and Implications 151PART THREE Payoff Structures and Sukuk Valuation 161CHAPTER 12 The Foundation and Principles of Islamic Finance 163Foundation 163Principles 164Conclusion 167CHAPTER 13 Cash-Flow Identification and Pattern Recognition for Theoretical Valuation Models 169Zero-Promised Regular-Payment Sukuk 169Fixed-Promised Regular-Payment Sukuk 171Variable-Promised Payment Sukuk 172Undetermined-Promised Payment Sukuk 174Conclusion 175CHAPTER 14 A Matter of Choice: Sukuk or Bond? 177The Economics of Conventional Bond-Based Funding 178World Markets for Conventional Loans 181The Case against Interest-Based Debt with No Risk Shared 182Are Sukuk an Alternative to Bonds? 185Conclusion 187CHAPTER 15 Challenges and Future Developments 189Valuation 189Liquidity 190Market Widening and Market Depth 191Cost of Issuance 191Variation in Schools of Thought 192Educating More Experts in Sukuk 193Regulatory Sufficiency 194Conclusion 195Bibliography 197Index 209

MOHAMED ARIFF, PHD, a professor of finance at Bond University, Australia (and the University Putra Malaysia), is widely considered a specialist on Asian Pacific finance and Islamic finance. Formerly, he served as the elected president of the Asian Finance Association. He is a co-author of Investments and has authored or coauthored 33 other books. His scholarly articles have appeared in leading economics and finance journals.MEYSAM SAFARI, PHD, is a senior lecturer at SEGI University, a private institution in Malaysia. He won a prestigious scholarship from Khazanah Holdings. His scholarly research and teaching is in finance, although he has an engineering background.SHAMSHER MOHAMAD, PHD, is a professor at INCEIF University. After distinguishing himself in professional duties, he served as the dean of the faculty of economics. His teaching includes post-graduate finance subjects and supervising 25 doctoral students to completion.

• Preface xiAcknowledgments xiiiList of Tables xvList of Figures xviiAbout the Authors xixPART ONE The Foundation of Sukuk Securities 1CHAPTER 1 Introduction to Sukuk Markets 3Islamic (Participation) Debt Securities 4The Origin of Sukuk Structures 6Contemporary Sukuk Securities 9How Sukuk Securities Are Priced 10The Structure of This Book 12CHAPTER 2 Sukuk Securities: Definitions, Classification, and Pricing Issues 13Fundamental Principles 14Defi nitions and Regulations 20Classifi cation Based on Practices 22Conclusion 29CHAPTER 3 Pragmatic and Idealistic Approaches to Structuring Sukuk 31Shariah : The Basic Foundations of Islamic Finance and Sukuk 32Islamic Financial Principles 35Three Approaches to Islamic Finance 40The History of Sukuk 41Sukuk Structures: Pragmatic and Idealistic Approaches 44Conclusion 55CHAPTER 4 Contract Design and the Structure of Common Sukuk Securities Issued to Date 57Mudarabah (Partnership) 57Musharakah (Profit Sharing) 59Murabahah (Markup) 62Ijarah (Leasing) 64Salam (Futures) 67Istisna (Working Capital) 69Conclusion 70CHAPTER 5 Samples of Sukuk Issued 71Sukuk Simpanan Rakyat (Malaysia) 71Central Bank of Bahrain 73Khazanah Nasional Berhad (Malaysia) 74Qatar Central Bank 74Nakheel Sukuk (UAE) 75Mahan Airline Company (Iran) 75Conclusion 76CHAPTER 6 Contract Design and the Structure of Sukuk Securities Yet Issued 77Wakalah (Agency) 77Manfaah (Usufruct) 78Muzarah (Farmland Leasing) 78Musaqah (Orchard Leasing) 79Muqarasah (Tree Leasing) 79Conclusion 79CHAPTER 7 Sukuk Securities and Conventional Bonds 81Comparison of the Yields of Islamic Securities and Bonds 82Yield Curves 86The Granger Causality Test for the Yields of Sukuk and Conventional Bonds 90Conclusion 94PART TWO Sukuk Securities in Practice 97CHAPTER 8 Regulations with a Difference 99Regulating Sukuk 99Conclusion 105CHAPTER 9 Securitization, Trading, and Rating 107Sukuk Trading 107Sukuk Rating Methodologies 113Conclusion 123CHAPTER 10 Worldwide Sukuk Markets 125The Geographical Location of Sukuk Securities 128The Effect of Geographical Location on Contract Specifications 137Conclusion 139CHAPTER 11 Regulatory Issues for Sukuk Financial Products 141The Current Sukuk Market 142Regulation and Shariah Issues in the Current Sukuk Market 143Current Sukuk Structures 145Possible Developments and Implications 151PART THREE Payoff Structures and Sukuk Valuation 161CHAPTER 12 The Foundation and Principles of Islamic Finance 163Foundation 163Principles 164Conclusion 167CHAPTER 13 Cash-Flow Identification and Pattern Recognition for Theoretical Valuation Models 169Zero-Promised Regular-Payment Sukuk 169Fixed-Promised Regular-Payment Sukuk 171Variable-Promised Payment Sukuk 172Undetermined-Promised Payment Sukuk 174Conclusion 175CHAPTER 14 A Matter of Choice: Sukuk or Bond? 177The Economics of Conventional Bond-Based Funding 178World Markets for Conventional Loans 181The Case against Interest-Based Debt with No Risk Shared 182Are Sukuk an Alternative to Bonds? 185Conclusion 187CHAPTER 15 Challenges and Future Developments 189Valuation 189Liquidity 190Market Widening and Market Depth 191Cost of Issuance 191Variation in Schools of Thought 192Educating More Experts in Sukuk 193Regulatory Sufficiency 194Conclusion 195Bibliography 197Index 209