IDEAS home Printed from https://ideas.repec.org/a/pal/risman/v24y2022i4d10.1057_s41283-022-00096-9.html
   My bibliography  Save this article

Default risk as a factor preventing companies from entering the sukuk market

Author

Listed:
  • Madina Kalimullina

    (National Research University Higher School of Economics)

  • M. Kabir Hassan

    (The University of New Orleans)

Abstract

The international sukuk market is represented by a limited number of issuers. One of the factors preventing companies from entering the market is, apparently, elucidating the true default risk of the potential sukuk issuance and related risk-minimization tools, such as guarantees and ratings. The article focuses on the default risk the potential sukuk issuer should consider. The research methodology includes a comparison between the theoretical maxims of sukuk, described by scholars and standard setters, and the existing market practice. To evaluate the potential impact of defaults and near defaults on the issuer’s reputation, a poll was conducted among the market practitioners. The results show that sukuk largely continue to imitate the bond market as per the default risk, and the path dependence of the industry on the ill-formed sukuk dominating the market impedes the revert to the initial concept of sukuk as an investment instrument. Certain steps are suggested for a potential issuer to minimize the default risk.

Suggested Citation

  • Madina Kalimullina & M. Kabir Hassan, 2022. "Default risk as a factor preventing companies from entering the sukuk market," Risk Management, Palgrave Macmillan, vol. 24(4), pages 298-326, December.
    • Handle: RePEc:pal:risman:v:24:y:2022:i:4:d:10.1057_s41283-022-00096-9
    DOI: 10.1057/s41283-022-00096-9
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1057/s41283-022-00096-9
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1057/s41283-022-00096-9?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Sweder van Wijnbergen & Sajjad Zaheer, 2013. "Sukuk Defaults: On Distress Resolution in Islamic Finance," Tinbergen Institute Discussion Papers 13-087/VI/DSF57, Tinbergen Institute.
    2. Uddin, Md Hamid & Kabir, Sarkar Humayun & Hossain, Mohammed Sawkat & Wahab, Nor Shaipah Abdul & Liu, Jia, 2020. "Which firms do prefer Islamic debt? An analysis and evidence from global sukuk and bonds issuing firms," Emerging Markets Review, Elsevier, vol. 44(C).
    3. M. Kabir Hassan & Mervyn K. Lewis (ed.), 2014. "Handbook on Islam and Economic Life," Books, Edward Elgar Publishing, number 16009.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Awais Ur Rehman & Saqib Farid & Muhammad Abubakr Naeem, 2022. "The link between corporate governance, corporate social sustainability and credit risk of Islamic bonds," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 18(12), pages 5990-6014, May.
    2. Asad Zaman & Arif Naveed & Atiq Rehman, 2019. "Wealth as an Indicator of Socio-Economic Welfare: Islamic Views," Palgrave Studies in Islamic Banking, Finance and Economics, in: Salman Syed Ali (ed.), Towards a Maqāṣid al-Sharīʿah Index of Socio-Economic Development, chapter 0, pages 189-205, Palgrave Macmillan.
    3. Mohamed Ariff, 2015. "Appeal of Sukuk as a New Type of Financial Instrument نداء صكوك كنوع جديد من الأدوات المالية," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 28(2), pages 149-175, July.
    4. Abdul Halim, Zairihan & How, Janice & Verhoeven, Peter & Hassan, M. Kabir, 2020. "Asymmetric information and securitization design in Islamic capital markets," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).
    5. Klein, Paul-Olivier & Weill, Laurent, 2016. "Why do companies issue sukuk?," Review of Financial Economics, Elsevier, vol. 31(C), pages 26-33.
    6. Mamoru Nagano, 2016. "Who issues Sukuk and when?: An analysis of the determinants of Islamic bond issuance," Review of Financial Economics, John Wiley & Sons, vol. 31(1), pages 45-55, November.
    7. Hossain, Mohammed Sawkat, 2021. "A revisit of capital structure puzzle: Global evidence and analysis," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 657-678.
    8. Abedifar, Pejman & Bouslah, Kais & Qamhieh Hashem, Shatha & Song, Liang, 2020. "How informative are stock prices of Islamic Banks?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 66(C).
    9. Paul†Olivier Klein & Laurent Weill & Christophe J. Godlewski, 2018. "How sukuk shapes firm performance," The World Economy, Wiley Blackwell, vol. 41(3), pages 699-722, March.
    10. Taoual, Safiyah, 2016. "Sukuk: a potential for stability and development in the GCC," Economics Discussion Papers 2016-7, School of Economics, Kingston University London.
    11. Ebrahim, M. Shahid & Jaafar, Aziz & Omar, Fatma A. & Salleh, Murizah Osman, 2016. "Can Islamic injunctions indemnify the structural flaws of securitized debt?," Journal of Corporate Finance, Elsevier, vol. 37(C), pages 271-286.
    12. Kusuma , Ketut Ariadi & Silva, Anderson Caputo, 2014. "Sukuk markets : a proposed approach for development," Policy Research Working Paper Series 7133, The World Bank.
    13. Abdullahi Ahmed Umar & Kabiru Goje & Mahadi Ahmad, 2023. "Combating Rising Energy Poverty with Sunnah-Compliant Orthodox Sukuk Finance," JRFM, MDPI, vol. 16(10), pages 1-19, October.
    14. Md Hamid Uddin & Sarkar H. Kabir & Mohammad Kabir Hassan & Mohammed S. Hossain & Jia Liu, 2022. "Why do sukuks (Islamic bonds) need a different pricing model?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 2210-2234, April.
    15. Daniela Majercakova & Ludomir Slahor & Alexandra Mittelman, 2017. "Comparative analysis of Islamic bonds and conventional bonds in the chosen countries," Proceedings of Economics and Finance Conferences 4507314, International Institute of Social and Economic Sciences.
    16. Balli, Faruk & de Bruin, Anne & Chowdhury, Md Iftekhar Hasan, 2019. "Spillovers and the determinants in Islamic equity markets," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    17. Mervyn K. Lewis, 2015. "Models of Islamic Banking: The Role of Debt and Equity Contracts نماذج الأعمال المصرفية الإسلامية: دور عقود الدين وحقوق الملكية," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 28(1), pages 151-164, January.
    18. Harun Sencal, 2021. "Consequences of the Legal Personality of Commercial Entities: An Evaluation from the Perspective of Islamic Economics," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul University, Faculty of Economics, vol. 71(71-2), pages 367-394, December.

    More about this item

    Keywords

    Sukuk defaults; Islamic finance; Default risk; Sukuk market impediments; Sukuk vs. bonds;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pal:risman:v:24:y:2022:i:4:d:10.1057_s41283-022-00096-9. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.palgrave.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.