Whereas in my earlier blogposts, I have always commented that Ijara comes closest to or rather IS Islamic finance, however, the way many Sukuks (mainly Sukuk Al Ijarah) are structured, this does not hold true. In a utopian world, Sukuk owners should be the true owners of the assets which should be leased to the lessees at the Ijarah rate. However, majority of the Memorandums or Prospectus of Sukuks issued are at pains to show that whereas there are underlying assets, there are many layers and agreements between the Sukuk holders and the assets such that Sukuk holders may get the financial benefits of owning the assets but they are not true owners. Thus defeating the whole purpose. Anyway, at least they tried to keep a modicum of being Sharia compliant issues. Now we also have a Sukuk Al Wakalah. This year, Hong Kong government issued its second Sukuk. Whereas their earlier Sukuk was Sukuk Al Ijarah, the current Sukuk is Sukuk Al Wakalah. And this is how they market it in their Press Release:
“Building on the momentum from the successful issuance of the inaugural sukuk last year, the latest issuance strengthens our relationship with global investors and demonstrates the flexibility of Hong Kong’s Islamic finance platform. Compared with Ijarah structure of the inaugural sukuk which requires underlying tangible assets of at least 100% of issuance amount, this latest structure allows the use of substantially less tangible assets, which is one-third of issuance amount, for this purpose. The use of the “asset light” structure can set a benchmark for potential issuers in the private sector,” the Financial Secretary of Hong Kong, Mr John C Tsang, said.
Asset Light? What is Asset Light? Reminds me of conversation that I had with a conventional bank in Dubai. I asked him what is the sharia structure of the transaction already agreed by existing Islamic bank in the transaction. The conventional bank replied to me, “don’t worry about them. They are sharia-lite.”