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  • OFS-1.9 OFS-1.9 Eligibility to Issue Shari'a Compliant (Islamic) Securities

    • OFS-1.9.1

      For the issue of Islamic debt securities or Sukuk, the issuer must be a single purpose entity (vehicle) (SPV).

      January 2014

    • OFS-1.9.2

      The issuer and/or originator must appoint either:

      (a) An independent Shari'a advisor or committee who has been approved by the CBB, in case of an issuer who does not have an existing Shari'a advisor or committee; or
      (b) An Islamic bank or a licensed institution approved by the CBB to carry out Islamic banking to advise on all aspects of the Islamic private debt securities.
      January 2014

    • OFS-1.9.3

      The CBB may, where it is of the view that the structure of the offering poses undue risks to the investor, reject the application to issue and offer such securities or require the issuer to satisfy the CBB that such risks have been addressed.

      January 2014

    • OFS-1.9.4

      The issuer of Islamic debt securities must comply with Shari'a principles and the Shari'a pronouncement report.

      January 2014

    • OFS-1.9.5

      The Shari'a advisor appointed in accordance with Rule OFS-1.9.2 must advise the issuer on all aspects of the Islamic securities, including documentation, structuring, investment, as well as other administrative and operational matters in relation to the Islamic securities, and ensure compliance with applicable Shari'a principles.

      January 2014

    • OFS-1.9.6

      The issuer is responsible for the compliance of the instrument with Shari'a principles. The Shari'a advisor's role does not release management from their responsibility in ensuring such compliance. The issuer must not restrict the activities of the Shari'a advisor in any way. In any case where restrictions are imposed these must be disclosed by the Shari'a advisor to the CBB, as well as disclosed in the offering document.

      January 2014

    • OFS-1.9.7

      For the purposes of Rule OFS-1.9.1, types of Islamic securities or Sukuk that may be issued include all Islamic Sukuk that are eligible to be issued under the CBB Volume 2 Rulebook, but are not limited to:

      (a) Ijara contract (similar in structure to a standard lease);
      (b) Salam contract (payment in advance of goods to be delivered at a date in the future);
      (c) Murabaha contract (asset financing);
      (d) Modarabah contracts;
      (e) Istisna'a contract;
      (f) Bai Bithaman Ajil contracts;
      (g) Intifaa; or
      (h) Any other Islamic contracts approved by a Shari'a Advisory Committee, or considered as an eligible issue under the CBB Volume 2 Rulebook.
      January 2014

    • OFS-1.9.8

      For the purpose of this Module, the Islamic or Shari'a compliance contracts or transactions must have the following meaning:

      (a) Ijara Sukuk is issued on stand alone assets identified on the balance sheet. For this purpose, the assets identified can be land which is to be leased, or equipment (e.g. aircraft, ships) to be leased. The rental rates of returns on these Sukuk can be both fixed and floating, depending on the particular originator;
      (b) Salam contracts are issued when payment is made in cash at the point of contract, but the delivery of the asset purchased is deferred to a pre-determined date;
      (c) Murabaha contracts are those that cover the sale and purchase transaction for the financing of an asset whereby the cost and profit margin (mark-up) are made known and agreed by all parties involved. The settlement for the purchase can be a deferred lump sum payment or an instalment basis of payments;
      (d) Modarabah contracts are used to finance a project or business venture whereby the investor (Rabb Al Maal) provides capital and a manager (Mudarib) manages the project or the business. A financial institution may act as the Mudarib for funds it mobilizes for investments in Shari'a compliant products. If the venture is profitable, the profit will be distributed based on a pre-agreed ratio and losses if any are to be borne solely by the provider of the capital (Rabb Al Maal);
      (e) Istisna'a contracts are used primarily in project finance. Such contracts are not tradable securities since the underlying asset does not yet exist. The proceeds of such an issue would typically be used to construct the base infrastructure through multiple Istisna'a agreements;
      (f) Mixed Ijara contracts are contracts where the underlying assets can comprise of Istisna'a or Murabaha receivables in addition to Ijara; and
      (g) Mixed Ijara Sukuk allows for a greater variety of funds to be used since previously inaccessible Murabaha and Istisna'a assets can be used in the portfolio.
      January 2014

    • OFS-1.9.9

      The listing and tradability of the various Islamic contracts is subject to the Shari'a rules and principles and Shari'a Pronouncement Report in respect of each contract.

      January 2014