Sharia compliant non interest paying Islamic instruments, Sukuk
is on the rise throughout the global financial markets. The volume
of the global Sukuk market which is currently led by Malaysia, has
already reached a volume of 1.5 trillion dollars and this financial
instrument has recently expended to reach non-Muslim markets as the
latest decision taken by David Cameron for Britain to establish an
Islamic financial instruments index inside the London Stock
Exchange and the British Treasury to issue 300 million dollar worth
of Sukuk demonstrate.
The Safer Instrument
Sukuk should not be seen only as a financial instrument that
bans interest payments but it is of critical importance to analyze
this instrument in a wider context that it operates which is the
Islamic Law; Sharia. This is an important aspect of the Sukuk
instruments due to the fact that they all have to be compliant with
the Sharia which's understanding of financial transactions is
closer to traditional banking. That means that the toxic assets
which are the products of extremely complicated credit and lending
practices where neither the creditor nor the lender anymore knows
whom one lends the credit and from whom the credit comes, are not
seen favorably by the Islamic Law. So the kind of high risk
instruments that involve high leverage levels which have devastated
the global economy during the latest financial crisis are out of
the picture in Sukuk markets. For some this might be perceived as
too risk averse but this prevents such instruments to have such
destabilizing effects neither for the financial markets nor for the
holders. Hence the Sukuk instruments obviously offer a safer
opportunity for financial investments by not entirely clearing off
but minimizing the risks.
Alongside predictability Sukuk also offers the much needed
advantage on the part of the investors of providing easy
liquidation. The tradability of the instrument assures easy
liquidation in case of dire cash need by the investors. Moreover,
the imperative to channel the resources to productive real life
projects rather than interest paying financial or speculative
activities, contributes to the financial stability as a result of
aversion from high risk uncertainties and activities that have no
real economic benefits. However since Sukuk instruments are based
on the principle of risk sharing by the investor and the issuer,
the investors should pay attention to the projects that the Sukuk
instruments are based upon and which their real investments
Turkey: A New Emerging Sukuk Market
As the Turkish economy continues to strengthen its
macro-economic foundations its financial markets offer a wider
range of financial instruments to a wider range of investors both
from in and outside of Turkey. In line with such economic
developments Turkey joined the growing global Sukuk market and the
Turkish treasury issued 1.5 billion dollars worth of Sukuk in
September 2012. This is followed by more than 1 billion dollars
worth of Sukuk sales during the first half of the year 2013.
Regulatory bodies in Turkey have responded to this recent growth
of global Sukuk market with positive steps that will encourage even
more the demand for Islamic financial instruments. Tax exemptions
constitute the most important part of these encouraging steps.
Earnings generated through the sale of an asset by the originator
to the sukuk SPV which have the official permission to to issue and
sell ijarah certificates in Turkey (Special Purpose Vehicle) and
its sale back to the originator by the SPV are exempt from
corporate tax, which amounts to 20% under the existing tax regime.
Both the lease certificate and the sale and leaseback transaction
are exempt from value added tax. Corporate earnings from ijarah
certificates issued onshore and earnings from Treasury sukuk al
ijarah certificates issued offshore are not subject to income tax.
Earnings from ijarah certificates issued onshore will be subject to
only 10% individual income tax. Sukuk al ijarah transactions are
also exempt from red tape-related costs, such as registry fees,
cadastral surveys and notary public fees.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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