Murabaha sukuk are certificates whose proceeds are used to buy goods that are then sold on credit to the issuer at a disclosed mark-up; holders jointly own the resulting price receivable and collect its instalments until final payment.
From issue proceeds to purchased goods
The special purpose vehicle collects subscribers' money and then, often through an agent, buys lawful goods for cash, such as metals or other commodities. It must become their owner and bear their risk before any resale takes place.
Resale to the issuer at a known mark-up
The goods are then sold to the issuer, who needs the funding, for a price equal to cost plus a disclosed profit. With 100 million spent and a 15 million mark-up over three years, the total receivable is 115 million, payable in instalments.
Why does the issuer immediately sell the goods on?
In many issues the issuer wants cash, not metal, so it sells the commodity straight away in the market. The arrangement then resembles tawarruq, whose validity, especially in organised form, is disputed by some scholars.
Once agreed, the sale price cannot change
After the Murabaha is concluded the price becomes a fixed debt. A late instalment cannot grow for the benefit of holders; any late-payment penalties are given to charity, in line with practices approved by Shariah boards.
A receivable that trades only at face value
The holder owns a share of debt rather than a real asset. According to most scholars and AAOIFI standards, debt may only be transferred at face value, otherwise the difference would be riba. A secondary market is therefore practically absent.
Paper held until maturity
Investors consequently buy these sukuk intending to keep them until redemption: Islamic banks, compliant money market funds, corporate treasuries. A listing mainly serves transparency rather than active trading with gains or losses.
Malaysia's position on the sale of debt
Malaysia long accepted bai al-dayn, the sale of receivables at a negotiated price, which allowed Murabaha sukuk to trade in the secondary market. Most Gulf scholars reject it, so such paper has circulated poorly between the two regions.
Mixed pools and tangible-asset thresholds
To make a sukuk tradable, Murabaha receivables are sometimes combined with leased assets or equity stakes. As long as tangible assets exceed a threshold set by the Shariah board, often 30% or 51%, the certificate can be sold at market price.
When does a Murabaha sukuk make sense?
This structure suits an issuer that lacks physical assets to sell and lease back, the precondition of an Ijara sukuk. It finances trade, inventory or short- to medium-term treasury needs, with a cost known on the issue date.
Funding imports or working capital
An industrial issuer might, for example, have the SPV buy the raw materials it needs and then pay for them in six half-yearly instalments. The financing then matches a genuine commercial transaction, which Shariah boards tend to view more favourably.
Fixed return, but credit risk on the issuer
Holders' profit is locked into the sale price and does not rise or fall with business results, unlike a Mudaraba. The main risk is therefore default by the deferred buyer, which makes the issuer's credit rating decisive.
How this sukuk differs from a fixed-rate bond
Cash flows can look like those of a bond, but they arise from a sale of identified goods concluded after the SPV has acquired them. Without real goods and transfer of ownership, the deal would revert to a forbidden interest-bearing loan.
Specialist external source
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