AAOIFI

1. Workshop Seminar on Development of Sukuk Markets – organised by the World Bank and Arab Monetary Fund Abu Dhabi, United Arab Emirates 22 April 2015

2. AAOIFI is responsible for developing and issuing standards for international Islamic finance industry. • Supported by over 200 institutional members from over 45 countries. • Members are central banks, regulatory authorities, financial institutions, accounting & auditing firms, legal firms, etc. AAOIFI • Total of 92 standards issued: (a) 52 Shari’a standards, (b) 26 accounting standards, (c) 5 auditing standards, (d) 7 governance standards, and (e) 2 codes of ethics. • In addition, new standards are being developed and existing standards reviewed. Standards Adoption of Standards • AAOIFI standards are followed – as part of regulatory requirement or basis of internal guidelines – in jurisdictions that offer Islamic finance across the world. • Consequently, AAOIFI standards have introduced greater harmonisation of international Islamic finance practices.

3. AAOIFI Shari’a Standard on Investment Sukuk

4. Types of investment sukuk 1. Certificates of ownership in leased assets. 2. Certificates of ownership of usufructs..… - of existing assets (for leasing or subleasing). - of tangible future assets. - of services of a specified party. - of future services.

5. Types of investment sukuk (cont’d) 3. Salam certificates – ownership of goods / commodity (to be produced). 4. Istisna’ certificates – ownership of goods / assets (to be manufactured / constructed). 5. Murabaha certificates – ownership of goods / assets.

6. Types of investment sukuk (cont’d) 6. Musharaka certificates..… - Participation certificates (Musharaka / partnership). - Mudaraba Sukuk (investment management). - Investment agency Sukuk

7. Types of investment sukuk (cont’d) 7. Muzara’a certificates – agricultural sharecropping. 8. Musaqa certificates – agricultural irrigation. 9. Mugharasa certificates – agricultural land and plantation.

8. Source: Islamic Finance Qualification (IFQ) workbook – Securities & Investment Institute / Ecole Superieure des Affaires.

9. Certificates of ownership in leased assets Source: Islamic Finance Qualification (IFQ) workbook – Securities & Investment Institute / Ecole Superieure des Affaires.

10. Certificates of ownership in leased assets • Ownership in leased assets, or tangible assets to be leased. • Issuer: seller of asset. • Subscribers: buyers of asset. • Subscribers become owners of asset and are entitled to lease rental income from the asset. • Can be traded. • Can be redeemed, prior to maturity, at market price or agreed price.

11. Certificates of ownership of usufructs of existing or future assets • Ownership in usufructs of existing assets (for head-lease or sub-lease) or future assets (for future lease). • Issuer: seller of usufructs. • Subscribers: buyers of usufructs. • Subscribers become owners of usufructs (of assets or services) and are entitled to income generated. • Trading subject to conditions. • Can be redeemed, prior to maturity, at market price or agreed price.

12. Certificates of ownership of services of a specified party or future services • Ownership in services through a specified provider or future services. • Issuer: seller of services. • Subscribers: buyers of services. • Subscribers become owners of services and are entitled to income generated. • Trading subject to conditions. • Can be redeemed, prior to maturity, at market price or agreed price.

13. Salam certificates Source: Islamic Finance Qualification (IFQ) workbook – Securities & Investment Institute / Ecole Superieure des Affaires.

14. Salam certificates • Ownership of goods / commodity (to be produced). • Issuer: seller of goods. • Subscribers: buyers of goods. • Subscribers become owners of goods (to be produced) and are entitled to subsequently benefit from the goods. • Not permissible to trade.

15. Istisna’a certificates Source: Islamic Finance Qualification (IFQ) workbook – Securities & Investment Institute / Ecole Superieure des Affaires.

16. Istisna’ certificates • Ownership of goods / assets (to be manufactured / constructed). • Issuer: manufacturer / supplier of goods / assets. • Subscribers: buyers of goods / assets. • Subscribers become owners of goods / assets (to be manufactured / constructed) and are entitled to subsequently benefit from the goods / assets. • Trading subject to conditions.

17. Source: Sukuk – Introduction to Underlying Principles and Structures (publication by Dar Al Istithmar).

18. Source: Sukuk – Introduction to Underlying Principles and Structures (publication by Dar Al Istithmar).

19. Murabaha certificates • Sales of goods / assets. • Issuer: seller of goods / assets. • Subscribers: buyers of goods / assets. • Subscribers become owners of goods / assets and are entitled to subsequently benefit from the goods / assets. • Trading subject to conditions.

20. Musharaka certificates Source: Islamic Finance Qualification (IFQ) workbook – Securities & Investment Institute / Ecole Superieure des Affaires.

21. Musharaka certificates • Partnership in a project or business activity. • Issuer: principal partner. • Subscribers: partners. • Subscribers become owners of partnership capital / business and are entitled to profit from the business. • Not permissible for Musharik to guarantee profit.

22. Mudaraba certificates Source: Islamic Finance Qualification (IFQ) workbook – Securities & Investment Institute / Ecole Superieure des Affaires.

23. Mudaraba certificates • Partnership in a project or business activity. • Issuer: Mudarib (investment manager). • Subscribers: partners. • Subscribers become owners of partnership capital / business and are entitled to profit from the business. • Not permissible for Mudarib to guarantee profit.

24. AAOIFI additional guidance on Sukuk • Proper sharing of risks and rewards under Musharaka and Mudaraba structures. • Undertaking to purchase assets by Musharik / Mudarib or investment agent / manager must be based on net asset value, market value, cash equivalent value, or any price agreed upon at time of purchase (i.e. not at face value or nominal value). • Comprehensive and continuous supervision by Shari’a Supervisory Board in all processes and stages of Sukuk transactions from structuring to redemption.

25. AAOIFI Governance Standards

26. AAOIFI Governance Standards • Shari’a Supervisory Board (SSB): Appointment, Composition and Report. • Shari’a Review • Internal Shari’a Review. • Audit and Governance Committee. • Independence of SSB. • Governance Principles. • Corporate Social Responsibility (CSR).

27. Shari’a Supervisory Board (SSB) • Appointed by shareholders at annual meeting. • At least 3 members. • Experts in Islamic commercial jurisprudence. • May include 1 member with expertise in Islamic finance (rather than jurisprudence).

28. SSB (cont’d) • May not include significant shareholder or member of Board of Directors. • May engage external consultants to assist duties. • Terms of engagement to be agreed with the institution and included in letter of appointment.

29. SSB (cont’d) • Main functions: • Directing, reviewing and supervising institution’s activities to ensure Shari’a compliance. • Shari’a advice and guidelines. • Shari’a approval on products and services. • Shari’a review.

30. Adoption of AAOIFI Standards

31. Adoption of accounting standards • AAOIFI accounting standards have been made part of mandatory regulatory requirement in jurisdictions such as Bahrain, Jordan, Oman, Qatar, Qatar Financial Centre, Sudan, and Syria. • AAOIFI accounting standards have also been adopted by Islamic Development Bank Group, a multilateral institution. • In addition, AAOIFI accounting standards have also been used as basis of national accounting standards in jurisdictions such as Indonesia and Pakistan. • In other jurisdictions including Brunei, Dubai International Financial Centre, Egypt, France, Kuwait, Lebanon, Malaysia, Saudi Arabia, South Africa, United Arab Emirates and United Kingdom as well as in Africa and Central Asia, AAOIFI accounting standards have been used voluntarily as basis of internal guidelines by leading Islamic financial institutions.

32. Adoption of Shari’a standards • AAOIFI Shari’a standards have been made part of mandatory regulatory requirement in jurisdictions such as Bahrain, Pakistan, Sudan, and Syria. • AAOIFI Shari’a standards have also been adopted by Islamic Development Bank Group, a multilateral institution. • In addition, AAOIFI Shari’a standards have also been used as basis of national Shari’a guidelines in jurisdictions such as Indonesia and Malaysia. • In other jurisdictions including Brunei, Dubai International Financial Centre, France, Jordan, Kuwait, Lebanon, Saudi Arabia, Oman, Qatar, Qatar Financial Centre, South Africa, United Arab Emirates and United Kingdom as well as in Africa, Central Asia and North America, AAOIFI Shari’a standards have been used voluntarily as basis of internal guidelines by leading Islamic financial institutions.

33. Development and Review of Standards

34. Standards under development and revision • Including on: • New Shari’a standard/s relating to Sukuk (to give extensive and comprehensive guidance). • New accounting standard on issuance of Sukuk. • New / revised governance standards relating to Shari’a Supervisory Board.

35. Preliminary study Consultation note Exposure draft Issuance of standard Review of standard Final standard

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