Does anyone have a good primary on how to evaluate a structure to determine if it is traditional debt or risk-based Islamic compliant financing?
Franklin Global Sukuk Fund - how is this product any different than a regular bond?
The payments/coupon rate is fixed just like a bond (which is asset-backed).
What asset is backing the Sukuk - no mention?
The structure appears to be an asset sale and leaseback contract, which is a riba-based financing contract designed to off-balance-sheet debt obligations.
Here is a link to the largest holding in the fund:
While I understand and share some of your frustrations, I can point out to one thing that stands out which is different from a traditional bond issue. If you check page 7, they say Indication of profit or return. Both words ‘Indication’ and ‘Profit’ are important here. An indication basically means that they are not strictly guaranteeing a return, and profit is fundamentally different from ‘interest’. Sukuk contracts are worded and phrased differently from traditional bond issues and while in effect may seem similar, it means that they can legally be classified as Shariah Compliant.
As I imagine a table of characteristics of a bond and Sukuk, using the information you provided, they appear identical just with different words representing the same characteristic of the bond. If both are secured by the asset, and payment default results in liquidation are not both, in essence, guaranteeing payment? Under what circumstance of default of payment would things be different - the Sukkuk would have to have a clause saying the default of payment is not grounds for recourse.
Common equity dividend is explicit in that it says the dividend is non-cumulative, in the Sukkuk this is not the case (at least I could not find it), the obligation to pay is contracted, and although not written as guaranteed, if not paid the bond is in default and recourse occurs.
As a matter of clarity, Sukuk is a generic term for bond equivalent, there are multiple products that constitute a Sukuk. If you have a look at the link I provided this is a Murabaha contract.
I completely see your point, and like I said, I also share some of your frustrations having worked on Sukuk bond structuring with some institutions in the past. You are correct that a lot of the structuring of the Sukuk is based around the language used in the issuing document. This is something we find common across multiple Islamic banking products, and we can only hope that the policymakers devise better ways of structuring these products. As regular Muslim investors, we can do our best to bring this to their attention and invest in products that satisfy our own conscience.
Your perspective is definitely interesting and much appreciated of course!