1. Sukuk Al IJarah Whether Asset Backed or Asset Based
Wan Abdul Rahim Kamil
Consultant, Islamic Capital Market
Securities Commission Malaysia

2. Introduction
The uniqueness of Sukuk al Ijarah is that it is normally facilitated by a Special Purpose Vehicle.
The SPV:
Acts for and on behalf of the investors by as per the Trust Deed
Holds the ijarah asset in trust for the Investors
However it is to be noted that not all structures having an SPV is an Asset Backed Securitisation

3. Asset Backed Securitisation
4. Delivery of completed assets. Progress payments against progress deliveries
Equipment Suppliers
Assets
1.(a) Order for assets by SPV. Istisna’ Contract
Originator
SPV for
Sukuk Al Ijarah
2. Issuance of Sukuk to raise fund for procurement of asset
1. Negotiations for lease of assets to be procured
3. $
Assets
5. Ijarah of assets to Originator; now assuming role as Obligor
Sukuk
Sukuk
Sukuk
6. Ijarah Rental Payments $
3. Subscriptions $
8. Upon termination of Ijarah, asset sold to Originator
QUALIFIED INVESTORS
Sukuk al Ijarah Rental s Admin. Account
7. Distribution of Profits and final settlement to Investors
Under this structure, the assets are not purchased by the Originator but by a third party supplier. This is a true sale.

4. Asset-backed securitisation thus is
an asset-based transaction in which the funding for the acquisition of the asset is derived from investments evidenced by the sukuk issued by the SPV.
The asset is purchased from the originator under a true sale arrangement
The true sale isolates the asset completely from the originator and at the same time all rights and obligations in the said asset are thus transferred to the SPV
However, all obligations on the sukuk i.e. the income stream attached to it shall rest upon the originator who now plays the role as servicer i.e. the entity that is undertaking to administer the assets or perform such other services on behalf of the SPV as may be required in the said securitisation transaction.

5. Asset Based Securitisation
Assets
1.(a) Sale of assets owned by Originator to the SPV
Asset Based Securitisation
Originator
SPV for
Sukuk Al Ijarah
2. Issuance of Sukuk to raise fund for procurement of asset
1. Negotiations for lease of assets to be procured
3. $
Assets
5. Ijarah of assets to Originator; now assuming role as Obligor
Sukuk
Sukuk
Sukuk
6. Ijarah Rental Payments $
3. Subscriptions $
8. Upon termination of Ijarah, asset sold to Originator
QUALIFIED INVESTORS
Sukuk al Ijarah Rental s Admin. Account
7. Distribution of Profits and final settlement to Investors
Under this structure, the assets are purchased from the Originator . It is in form, a Sale and Leaseback followed by a buy-back upon termination of the Ijarah. The structure thus is not a true sale. Please note that even though the purchase is followed by a transfer of legal title; it fails the True Sale because of the Sale and Leaseback followed by the PU to buy back.