sukuk al wakala

International, United Kingdom

sukuk al wakala, Also known as wakala sukuk.

Islamic financial instruments (sukuk) based on an underlying wakala structure.

Financial instruments are issued by a special purpose vehicle that entitle the holders to a return in proportion to their investment in the underlying fund and a right under a purchase undertaking to buy all or a proportion of the underlying assets if certain conditions are fulfilled. The sukuk holders provide the capital for the Sharia-compliant investment activity and the investment of the funds is undertaken by the investment agent (wakeel).

+ sukuk al-wakala / sukuk al wakala

International, USA

A form of sukuk derived from the wakala structure. In a sukuk al wakala, the:

• Entity seeking capital (the originator) establishes a special purpose vehicle (SPV).

• SPV issues sukuk to investors.

• SPV enters into a wakala (agency) agreement with the originator (in this capacity, the wakeel) pursuant to which the wakeel agrees, as the agent of the SPV, to invest the proceeds of the sukuk issuance in a pool of Sharia compliant assets selected by the wakeel.

• SPV holds the assets/investments in trust for the sukuk holders who each own a proportionate interest in the assets in accordance with the value of their investment.

• SPV receives a specified amount from the profits generated from the investments. The originator/wakeel receives a fee for its investment management duties and any profits generated in excess of the specified amount.

• SPV uses the amounts it receives to make periodic distribution payments to the sukuk holders.

For more information on this structure see Checklist, Islamic Finance Deal Structure: Sukuk al-wakala (www.practicallaw.com/7-501-1194) and on Islamic finance generally, see Practice Note, Islamic Finance: Overview (www.practicallaw.com/9-500-3701).