Sukuk Securities: New Ways of Debt Contracting

CHAPTER 6 Contract Design and the Structure of Sukuk Securities Yet Issued

This chapter reviews the financial and legal structures of sukuk that have not yet been issued but have already been structured: wakalah (agency), manfaah (usufruct), muzarah (farmland leasing), musaqa (orchard leasing), and muqarasah (tree leasing).

WAKALAH (AGENCY)

Wakalah is an agency contract in which one party entrusts another party to act on his or her behalf. The principal (the investor) appoints the agent (the wakeel) to invest a certain amount of funds on behalf of the principal in a pool of investments or assets. The agent charges the principal a predetermined fee for his or her expertise and management skills. The wakalah agreement governs this relationship by setting the scope of services, responsibilities, and fees payable to the agent. This is for a specific purpose.

Wakalah sukuk are based on the wakalah contract and are of interest when there is no particular tangible underlying asset. Wakalah sukuk can be used when the underlying asset is a pool of investments or assets to be collected. Then, using his or her expertise, the agent selects and manages the portfolio of assets to ensure the generation of the principal’s expected rate of return.

Wakalah sukuk may resemble some features of mudarabah sukuk; however, the main difference is that in mudarabah, the agent receives a portion of the profit, whereas in wakalah, the investors receive the prenegotiated profit share, while the balance ...