Municipal Sukuk as a Model for Financing Municipalities and Public Service Institutions in Saudi Arabia

Transcription

1. Municipal Sukuk as a Model for Financing Municipalities and Public Service Institutions in Saudi Arabia Prof . Dr. Ahmed T. Al Ajlouni Professor of Islamic Finance & Banking Dept. of Economics & Finance-CBE / Qassim University Manal A. AL Habeeb Instructor of Finance Dept. of Economics & Finance-CBE / Qassim University Abstract Saudi Arabia experience structural economic changes embodied by Vision 2030. One of the main aspects of this master plan is related to the financial markets and developing its instruments. This paper is devoted to developing new financial instrument called Municipality Sukuk (MuSk), and bring it to the attention of policy makers in Saudi Arabia as a new style of Sukuk to bridge the gap in financing municipalities and independent public services via Sukuk. Comprehensive literature review has been spent to provide background about the traditional municipal bonds in order to show its potential in financing municipalities, in addition to highlighting the viability of it as an Islamic capital market instrument embodied by Sukuk to finance municipalities and independent public service institutions. The argument concentrated on the rationale behind adopting MuSk in the kingdom, supported by the expected objectives and key success factor and implication requirements. We suggested MuSk as it help Municipals to manage their resources efficiently, and intercept with many goals of the Saudi NTP. Which contribute in the national effort to modernize Saudi economy to achieve the main objectives of Vision 2030. Key words: Municipal Bonds, Sukuk, Islamic Finance, Saudi Arabia. 1
2. 1 . Introduction The most prominent Saudi economic decisions recently focused on identifying the sources of public funds and their uses through the public budget, which affects the various aspects of the state's economy. It has become necessary to review the dependence on oil as a primary source of income in light of the regional and global political changes facing the Kingdom of Saudi Arabia, where the political administration has emerged in this through the vision of the kingdom 2030 and the search for sustainable alternative sources has become a main axis of the general economic policy of the country. The first phase of the "National Transformation Program 2020" was launched in 2016, at the level of 24 government entities based on economic and development sectors to build capacities that achieve the goals of the 2030 vision. The program contains strategic goals linked to specific goals until 2020. The clear plan set out the third strategic goal of the Ministry of Municipal and Rural Affairs the necessity of achieving increased levels of financial self-sufficiency and achieving high-quality sustainable institutional performance by raising the proportion of self-sufficiency from 11% to 40% (NTP, 2016). Municipal bonds represent financing tools for municipalities and local units in many countries of the world, based on the administrative and financial independence of these units and to reduce the burden on the country’s general budget. There is rich experience in using these financial tools in these countries, with their contemporary financial tools that meet contemporary needs. One of these tools is what has become known as "Islamic bonds" that have gained global popularity, which has won recognition from global financial markets as feasible financial tools. Sukuk comes in to fill the gap between Islamic financing and the local and international capital markets. One of the modern topics in Islamic finance is Sukuk. Beside Islamic banks and Takaful industry, Sukuk represent the third pillar in the global structure of Islamic financial system. It represents an important factor in developing Islamic Finance industry, and push the industry forward at the local and international levels. Interest in Sukuk included governments, investors and businesses to enhance their investment portfolios and diversify sources of funds. The global Sukuk issuance in the year 2019 registered a soaring growth of 40.4% with a total of USD157.8 billion Sukuk issued. The growth is mainly driven by increased number of sovereign issuances from the United Arab Emirates (UAE), Saudi Arabia, Turkey and Indonesia. Outstanding Sukuk as at end of 2019 rose to USD491.7 billion (+13.2%). Malaysia remains as the leading Sukuk market, commanding 48 % market share of global Sukuk outstanding and 53 % share of global corporate Sukuk issued last year (MIFC, 2020b). The upward trend issuance that Sukuk have enjoyed even with the slump in global and regional economic conditions denotes for solidity of this Islamic financial instrument and rooting of Islamic financial markets. It is a clear indication that there is growing acceptance of the Sukuk product, given the high visibility, transparency and confidence towards the Islamic financial products (Mohd-Rashid & Tajuddin, 2019). The article is devoted mainly to develop new financial instrument called " Municipal Sukuk” (MuSk), the idea of this instrument will benefit from the experiences of advanced countries in issuing traditional (Interest rate based) municipal bonds and customize unique model consistent with Islamic principles in regard to financing methods and tools. The suggested model fits with the values of the Muslim communities in Saudi Arabia and other Muslim countries in providing financial instruments that are compatible with the general principles framework of Islamic Shari'ah. Besides, the proposed model will not only be limited to municipalities but can also be generalized to independent public institutions such as state universities. 2
3. Rationale behind study Through intensive review of the previous literature and looking in the experience of different financial markets worldwide we didn 't find any financial market that have financial instrument devoted to finance municipalities and public service units based on Islamic principles, all what we found is an interest rate debt instruments (I.e. municipal bonds) that follows traditional model of corporate bonds with some special characteristics. On the other side we found Islamically acceptable financial instruments (I, e Sukuk) that is devoted mainly for the private sector embodied by corporates or governmental sovereign instruments to finance general public financial needs, but none of these securities devoted solely to municipals and independent public entities. This study will suggest a customized security called Municipal Sukuk (MuSk) that is devoted to consider the unique characteristics of municipalities and its objectives in providing public services away from interest based traditional municipal bonds. At the same time capitalize from the current experience of traditional Sukuk. 2. Literature Review One of the wide spread implications of the contemporary theory of Islamic finance is the traded financial securities is Sukuk, this well-known unique financial instrument attracted more attention from researchers since its first existence in the second half of the past century. Though some call Sukuk as "Islamic Bonds"; it varies apparently from traditional bonds as it is not interest based and most of the Sukuk are not debt based also. Sukuk have been studied from different sides, its characteristics, structures and risks compared to interest based bonds (Hasan, Ahmad, & Parveen, 2019). The impact of Sukuk issuance on emerging markets, its rule in infrastructure finance and economic growth have been studied by (Abdelkafi & Bedoui, 2016; Khudari & Saad, 2019; Smaoui & Nechi, 2017). Nagano (2016) and (Hasan et al., 2019) and Khartabiel, AbuAlkheil, Ahmad, and Khan (2019) showed how Sukuk differs from bonds. Pricing model that captures the common risks in Sukuk returns that identified two risk factors for Sukuk was developed by (Kabir, Uddin, Hassan, Hossain, & Liu, 2019). the contracts, structures and pricing mechanisms of Sukuk were examined by (Razak, Saiti, & Dinç, 2019). The study of Aman, Naim, and Isa (2019) shed light on theoretical relationships of Sukuk with some new possible determining factors along with some other factors that have not received enough attention in the literature. The study focuses on the dynamics of foreign capital inflows, macroeconomic and financial variables with respect to Sukuk market development. One of the important aspects regarding Sukuk is the accounting issues which also has its portion of research. Different studies investigated bonds from accountancy dimension. Accounting Standard Introduction and the relationships among financial disclosure quality, accounting-based risks of Sukuk in different countries (Qizam & Fong, 2019; Sukor, Muhamad, & Gunawa, 2008). Sukuk issuances become a financial market phenomenon due to its tremendous growth. However, several countries earn unsatisfactory achievements. The causes of unsatisfactory performance that attributed to the current economic situation that lead to the country pushed for conventional debt (Muhmad & Muhmad, 2018; Nisar, 2018). A distinguished sort of Sukuk is the sovereign Sukuk, Its issuance and impact on the economic growth of developing countries was studied by Malikov (2017) and weather this kind of Sukuk offer portfolio diversification opportunities for global fixed-income investors investigated on the country level in Malaysia (Bhuiyan, Rahman, Saiti, & Ghani, 2019). Municipal gained interest as a substitute way to raise funds for the municipals and local governments around the globe. 3
4. A study investigated the advance refunding of debt found that 85 % of all advance refunding occur at a net present value loss, it explored also why municipalities advance refund their debt at loss. It found strong evidence that financial constraints are a major driver of advance refunding activity (Ang, Green, Longstaff, & Xing, 2017). Investigating another side of the municipal bonds, a study examined the pricing of municipal bonds showed that default risk accounts for most of the municipal bond spread, while liquidity plays a secondary role (Schwert, 2017). Tax legislations related to municipal bonds were studied by investigating the impacts of tax policy on asset returns using the U.S. municipal bond market and Impact of federal income tax rates and government borrowing on nominal interest rate yields on tax-free municipal bonds (Babina, Jotikasthira, Lundblad, & Ramadorai, 2019; Cebula & Nair-Reichert, 2018). Though the biggest share of the research was devoted to the largest market for this kind of bonds in US, other countries had its share from the studies about municipal bonds. The problems and rules for local government bonds in China has been discussed Feng (2013). The effects of the revised Budget Law, enacted on January 1, 2015 that allowed local governments to borrow under specified conditions, bringing municipal bonds into the spotlight in Chins. The expected changes to China’s fiscal and tax reforms, the local governments’ financing pattern and the development trend of the bond market and The Impact of Government Intervention on Municipal Bond Liquidity Premium has been studied (Jiang, 2019; Li, Zhang, & Chang, 2018). Another study was devoted to develop market‐based debt financing systems in transitional and developing countries (Indonesia, Mexico, Philippines, Poland, and South Africa) to overcome constraints to develop municipal financing capacity (Martell & Guess, 2006). The role of Municipal bonds in financing infrastructure projects and their development and of accelerating local infrastructure investment were studied in a recent research (Goebel, 2017; Kozak, 2019; Medda & Cocconcelli, 2018; Platz, 2016; Singh & Kathuria, 2016). The following part of the article is devoted to shed light on the major types of bonds in general and the municipal bonds in particular, it will cover also the concept of Sukuk as an Islamic security traded in the contemporary financial markets. 3. Bonds The basic style of bonds defines it as a form of debt in which a loan is made by an investor to a borrower. The owners of the bonds are called the debtholders or creditors. Bond holders are obliged to pay back the debt with interest or repay at the maturity date. Common features of bonds are their face value, their coupon rate, coupon dates, maturity date, and the issue price. The face value of a bond represents the monetary amount that the bond will be worth when it matures. The issue price of the bond, on the other hand, refers to the original price that the bond issuer sells the bond. After maturity, the bond issuer will pay an interest on the face value of the bond which is referred to as the coupon rate. The coupon dates are the set dates in which the bond issuer is set to make interest payments. A bond has a maturity date which is when the bond issuer pays the bondholder the face value. The bond can be issued by a company, a city or municipality, or the central government. Municipal bonds as a kind of bonds follow this major definition, it is issued by a city or municipality which sell bonds with the aim of raising funds for its public service needs. 3.1 Types of Bonds In addition to the principal type of bonds as a debt instrument with fixed coupon payment and principal payback, various types of bonds available in the markets worldwide, it differs according to different characteristics as the interest rates, callability, redemption, and whether they are secured or unsecured. Bonds differ also according to the issuers weather corporate or state. Bonds can be 4
5. classified into more specific categories : government bonds, corporate bonds, sovereign bonds, diaspora bonds, agency bonds, municipal bonds, and the unique kind that have its own criteria is what is so-called the Islamic bonds. Corporate Bonds This kind of bonds issued by corporations, partnerships, limited liability companies, and other commercial enterprises. Raising funds through bonds as an external source of funds is a choice for the companies to benefit from the financial leverage and keep the control on the company by the current shareholders. It offer higher yields than other types of bonds before tax, but it charge the bearer higher tax in comparison to other kinds of bonds, in US, a successful investor might end up paying 40 to 50% of his or her total interest income. Agency Bonds These are issued by government agencies or government-sponsored units. Considered to be a low-risk investment, agency bonds are backed by the faith of the national government (Oji, 2015). Government Bonds Government bonds are issued by the central/national government to raise funds for the budget mainly. It is a sovereign debt guaranteed by the government which made it the safest bonds with the highest credit score. It can further be classified into four categories: treasury bills, treasury bonds, treasury notes and treasury inflation protected securities. Though government bonds are usually denominated in the country's own currency, it can be issued in the international financial markets in one of the hard currencies. When bonds are issued by governments to its citizens who reside outside the country it is called then Diaspora bonds. Islamic "Bonds" (Sukuk) This is a unique kind of financial securities that differ basically from the traditional interest based bonds. This kind of "Bonds" is designed according to the Islamic acceptable modes of finance and known as Sukuk; the nomination used in this article. These "bonds" usually follow Sharia law, “They cannot be used to buy traditional debt, to share in profits or receive rental income”(Oji, 2015). Sukuk are issued by governments, Islamic banks and firms in Islamic countries. Islamic bonds develop secondary markets through having a high level of acceptance from the investors and strong regulatory bodies. Municipal Bonds (Munis) Municipal bond is a promise issued by a state or local government components to other qualified issuers to repay to investors or lenders an amount of money borrowed, and the interest in accordance with a fixed schedule. It usually has maturities ranging from 1 to 30 years, although some bonds have been issued with maturities ranging from 40 to 100 years. Municipal bonds are also commonly called tax-exempts, because the interest paid to the investor is subject neither to federal income taxes nor (sometimes) to state or local taxation. The tax issue is subject to the local regulation of the country or federal state. Municipal securities maturities can be short term and long term. Shortterm issues (often called notes) usually mature in one year or less. The long-term issues (commonly known as bonds) matures in more than one year. The choice of issuing short term or long term depends basically on the term of needs of the municipality. Municipal bonds attracts the investors who are looking for lower tax as it is considered as taxfree. The exemption of tax legislated to achieve three objectives, it helps the municipality to compete for funds against corporate bonds, it carries higher yield compared to the higher taxable equivalent corporate. Besides, it encourages investors to invest in public services that the community needs, in projects that improve civilization such as funding roads, bridges, schools, hospitals, and more. Moreover, the municipal bond issues release the financial burden from the public budget by reducing the funds allocated to these municipalities and public service entities. 5
6. 3 .2 History and current status of municipal bonds Historically, bonds predate corporate debt. In its earliest form, Italian city-states borrowed money from banking families. American cities’ records show that municipal bonds have been issued since the early 1800s. Municipal bonds were issued to build railroads following the events of the civil war and rapid urban development. There followed a depression that was caused by the collapse of the largest bank in the country. The growth of municipal bonds slowed down until the occurrence of the Second World War. The U.S. Census data shows that the local debt increased from the years following the war. As quoted by SIFMA (2011) “Just after World War II, state and local debt was $145 per capita ($1568 in 2006 dollars). By 2006, the latest available U.S. Census data, state debt was $2915 per capita and local debt was $4451 per capita.” Status of Municipal bonds Many countries used to issue municipal bonds to finance municipalities and public service local entities. Since United States is the largest and most developed market for these bonds; we will focus on the municipality market in this country. According to the Municipal Securities Rulemaking Board MSRB, the municipal bond market size reached $ 3.8 Trillion in 2019 (MSRB, 2019). Figure 1 Compared to the corporate securities issuance in US, municipal bonds reached 29.2% of the total outstanding size of securities traded in the market, 27.1% of the daily trading volume and 22% of the new issuance volume. Table 1 The issuance reached peak in 2017 by $ 436 Billion, the average volume of the issuance range is about $ 300 billion during the last thirty years (INVESCO, 2019)1. 1 6 INVESCO collected data from SIFMA.
7. Figure 2 The expectations of SIFMA (2020) are optimistic about the growth of the municipal bond market in this year (2020). In spite of the expected negative growth in short-term issuance by $ 0,7 (1.6 %), larger increase in the volume is expected for the long-term and other municipal categories of municipal bonds is expected also. An increase by 6.7% for the long-term from $ 406.6 to $ 434 billion, in addition to 163.2% for the VRDO and 3.6% for the FRN issuances. The expected change of the issuance growth is 6% approximately for the total issuance. Table 2 The following figure summarize the yearly growth during the last decade aftermath the global financial crises. 7
8. Figure 3 The Municipal Securities Rulemaking Board (MSRB ) in US recognizes two kinds of municipal bonds according to the sources of payment (MSRB, 2020):  General obligation bonds: Principal and interest are secured by the full faith and credit ofthe issuer and usually supported by either the issuer's unlimited or limited taxing power. In many cases, general obligation bonds are voter-approved.  Revenue bonds: Principal and interest are secured by revenues derived from tolls, charges or rents from the facility built with the proceeds of the bond issue. Public projects financed by revenue bonds include toll roads, bridges, airports, water and sewage treatment facilities, hospitals and subsidized housing. Many of these bonds are issued by special authorities created for that particular purpose. Contrary to corporations which borrow in order to build facilities and make investments that improve their operations, municipalities borrow for purposes of improving the lives of people who reside within them. As a result of this, municipalities make decisions depending on the political or economic climate. An argument towards this is that investments such as parks and other non-revenue generating facilities should be paid for by the current users as well as the future users who will benefit from them. 3.3 Municipal Bond Characteristics Municipal bonds have its unique characteristics that are structured to achieve the public and social objectives of issuing them. These criteria give municipal bonds their independent character that distinguish them from corporate bonds and other financial securities, the most apparent characteristics of municipal bonds are: Taxability One of the unique criteria of the municipal bonds is the ability to provide tax-exempt income totally or partially, depends on the government legislations in regard to tax. Interest paid by the issuer to bond holders is often exempted from gross income for income tax purposes. Interest Rates Municipal bonds have much higher interest rates compared to the other debt securities as CDs, savings accounts, money market accounts, and others. Among other factors, this is a result of the longer, fixed return periods. Unlike stocks and other non-dated investments, municipal bonds have fixed rates and are far less liquid. 8
9. Liquidity , Denomination and Security The concept of liquidity describes the degree to which an asset (Real or financial) can be bought in cash quickly with least loss in its intrinsic value. Financial securities have less liquidity risk compared to real assets. Municipal bonds have been known as one of the least liquid assets on the market compared to its counterparts of financial assets like stocks. This may belong to the minimum investment amounts in municipal bonds have higher average buy-in minimums of $5000 (as the minimum denominations of $5,000 or multiples of $5,000) compared to the stocks are typically <$500 and about $1000 for CDs and money markets. These minimum investment amounts previously restrict the trade of municipal bonds to the institutional investors and wealthy people, barred many individuals from investing in it. Default rate is lower than that of corporate bonds it was 0.18% compared to 1.77% for the corporate securities during the period from 2007-2013 (MSRB, 2019), this belongs in the first place for the government collateral. Retirement of maturity Municipal bonds differ from corporate bonds retirement of maturity. Unlike corporate bonds that are usually issued with "term" maturities, many municipal bonds are issued with "serial" maturities. This means that the bond is issued with several maturity dates. A portion of the principal matures with each maturity date until the entire principal has been paid off. The interest rate of a serial issue can also be different with each redemption date. As with some corporate bonds, many longer-term municipals may also include "call" provisions. This means that the issuer can choose to retire the entire value of the bond early, on the call date, and would likely do so if prevailing interest rates were lower than the bond's coupon rate. 4. Sukuk: The concept and current status Islamic economic theory arises in its contemporary appearance aftermath the second world war. Financial and banking implications of the Islamic economic thought represented the Islamic model for dealing with financial and banking issues from the perspective of Islamic Shari'ah. Two distinguished features of the Islamic finance theory attracted the vast portion of global attention on the professional and academic level, the Islamic banking and Sukuk. Islamic finance industry experienced continuous growth from one year to the other in spite of the instable geopolitical environment in the Arab world and other Muslim countries. Islamic finance industry has grown by more than 10% per annum over the past decade to reach approximately USD1.3tln in 2011. The yearly report of the ICEIF estimated the industry’s total worth to be USD 2.05 trillion in 2017, marking an 8.3% growth in assets in USD terms, and reversing the preceding two years of assets’ growth stagnation (2017: USD 1.89 trillion vs. 2016: USD 1.88 trillion) (ICIFE, 2019). According to S&P Global Ratings up-to-date report " the global Islamic finance industry will continue to expand slowly in 2019-2020. Total assets increased by only about 2% in 2018, compared to 10% in 2017" (S&P, 2020). 9
10. Figure 4 The term of Sukuk originally came from the Arabic word :‫ صكوك‬in the plural form, singular is ‫ صك‬or Suk, which denotes to legal right represented in a document or instruments which are used for ligation based on sharia principles. In other words, Sukuk are long‐term securities based on sharia principles issued by issuers to holders of Islamic ligation that require issuers to pay income to holders of Islamic ligation in the form of profit sharing and repay bonds at maturity (Burhanuddin, 2009). The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) defined Sukuk as “certificates of equal value representing undivided shares in ownership of tangible assets, usufruct and services or (in the ownership of) the assets of particular projects or special investment activity” (AAOIFI, 2019). Some refers Sukuk as Islamic bonds because they can be traded as securities. Bonds are ordinarily an evidence of a debt that an issuer owes to bondholders, however, Sukuk represent evidence that an investor has ownership interest in the Sukuk asset or project. This gives them a share of the income that is generated thereafter. Sukuk provide the investor with greater flexibility against traditional bonds which have single income model, they provide the investor with different investment and income modes. They can be structured to offer a fixed return similar to the interest on a conventional bond. But unlike a bond holder, a Sukuk holder is granted an ownership interest in the assets or business being financed, and the return is tied to the performance of the underlying assets. How do Sukuk work? At the first glance of issuing Sukuk, investors buy Sukuk and become Sukuk holders, they receive a Sukuk certificate from the issuer. Sukuk represent a flexible financial instrument as it offers the investor different methods of achieving the same objective. The following chart exhibits the simplest model of Sukuk. 10
11. Figure 5 Different types of Sukuk are based on different structures of Islamic contracts (Murabahah, Ijarah, Istisna'a, Musharakah, Istithmar, etc.) depending on the project the Sukuk are financing2. All the assets that are underlying in the Sukuk should be Shari’ah - compliant, in addition to the dealing contracts and operations in the financial markets, these criteria embody the main differences between Sukuk and traditional bonds in addition to the basic difference in its structure as an equity instrument instead of being interest based instrument. Abdelkafi and Bedoui (2016) stated “The remuneration of the Sukuk holders is not based on debt and interest payments of the issuer, but it depends on the income generated by the underlying asset”, barring speculation (maysir), uncertainty and the exploitation of ignorance (jahl). Gharar is a term that means unnecessary risk in contracts. Maysir is used to describe businesses which are based entirely on speculation. Jahl describes businesses that are carried out to the benefit of one individual based on the ignorance of the other individual in the same business. Islamic law prohibits speculation uncertainty and the exploitation of ignorance and therefore, Sukuk must be compliant in order to be permitted. 4.1 Types of Sukuk Based on the general framework of financial instruments that offers different types of business models for conducting business and legal structure, the contemporary Sukuk as a financial instrument available in the global markets, a summary of these kinds is following (Latham & Watkins, 2017): Sukuk Al-Ijarah This kind of Sukuk is suitable to the issuing company based on its nature as a sale and leaseback compatibility. The rent payments can be calculated in reference to a market rate or be fixed. Sukuk al-Wakalah In a case where the underlying assets comprise a portfolio of investments as opposed to tangible assets, the Wakala Sukuk become useful. Like in the Mudarabahh Sukuk, an agent manages the investments on behalf of the investor. The investor thereafter receives only the profit return that was originally agreed upon. The agent can keep excess profits. Sukuk Al-Mudarabah This is suitable if the originator does not possess any tangible asset or does not have enough funding to purchase an asset to allow an Ijara to be structured on a sale and leaseback manner. Mudarabah Sukuk are suitable for funding development as they are tied to the profitability of the project. Sukuk Al-Musharakah 2 For more information on Sukuk contract in Malaysia, please visit BIX Malaysia. 11
12. As in the Sukuk al-Mudarabah , Sukuk al-Musharakah are suitable if the originator does not possess tangible assets and does not have enough funding to purchase an asset to allow an Ijara structured on a sale and leaseback. However, the Musharakah relies on the performance of the investment to generate profits for the investors. Sukuk Al-Istithmar If a business does not have any or few tangible assets. The Istithmar Sukuk can be useful. For example, as stated by Latham and Watkins (2015), “Islamic financial institutions which derive their rights to receivables from various Islamic contracts with their customers.” Sukuk Al-Manafa’a This allows for intangible assets through permitting the rights to commercial activities. For example, airtime vouchers, which have commercial value representing talk time, are an intangible asset that can be placed under the Manafa'a Sukuk. Sukuk Al-Istisna’a This Sukuk allows for the sale of investments that are to be produced in the future. Thereby, Istisna'a Sukuk are suitable for future infrastructure projects. Sukuk Al-Murabahah Sukuk al-Murabahah are described as structure that can be used if no tangible assets can be determined from the originator’s investment. Further, these Sukuk do not have negotiable tools that can be traded in a secondary market. Shari’ah states that trading in debt is not permitted. Given that Murabahah Sukuk represent a monetary debt, being claimed to share in the Sukuk expected from the originator, the Murabahah Sukuk would be prohibited from trading in the secondary market. In addition to the above traditional Sukuk structures, the domestic and global Sukuk markets witnessed issuance of new modes as new developments of like Green Sukuk, Sukuk issuance to support SME sector and FinTech or Blockchain related Sukuk (IIFM, 2019). Sukuk offer advantages to infrastructure financing. First, they allow for risk sharing in a group of investors. Due to the nature of Sukuk being backed by their underlying asset, there is less risk involved. Second, the return to the Islamic bond holders depends on the assets. Following this quality, the public debt burden is reduced if the public sector does not obligate to assure a fixed income to the Sukuk holders. Third, as described by Abdelkafi and Bedoui (2016) “in the presence of an efficient capital market, Sukuk would represent liquid assets that allow private investors to avoid the long-term commitment of their capital.” According to IIFM (2019), recent years witnessed greater international and domestic interest in particular Sukuk structures, Murabahah and Wakala modes in the case of both, which is a change from the preference for structures requiring more tangible assets in earlier years. 4.2 Sukuk current status Islamic finance industry globally, expanding its structure vertically and horizontally based on the four pillars that support its structure, Sukuk is one of these pillars (Islamic Banking, Funds and Takaful are the other pillars). Though Islamic banking industry acquire the vast portion of Islamic finance industry as the following chart shows, Sukuk are considered the most popular financial instrument of the Islamic finance industry (IIFM, 2019). 12
13. Figure 6 Sukuk as the most popular aspect of Islamic financial industry attracted overwhelming interest in its development , performance, structural preferences and drivers of the international and regional market in recent years. They became significant source of capital for the private investors as well as the governments in Southeast Asia and the Middle East. Moreover, well developed financial markets in US, western Europe, in addition to developing markets in Africa showed increasing appetite for Sukuk as one of the best ways to diversify their portfolios and achieve higher returns through investment in the fast growing emerging markets of Southeast Asia, the Middle East and North Africa. Approximations of the global Sukuk issuance reached US$77.1 billion by corporations, sovereign entities and government related entities (GREs) in 2016, amounting to more than double the US$33.6 billion raised in 2006 (S&P, 2020). According to the most recent data, the global Sukuk outstanding reached 491.7 USD Billions (MIFC, 2020a). Figure 7 As of end 2018, total sovereign Sukuk issuance since inception stands at USD 606.3 billion, which composite around 55% of the total global Sukuk issuances (MIFC, 2020a). According to IIFM (2019), the main sovereign issuers led by Saudi Arabia, Indonesia, Malaysia, Turkey continue to provide a strong foundation to the Sukuk market. Figure 8 shows the trend of sovereign Sukuk issuances since the year 2001. 13
14. Figure 8 The issuance of Sukuk recorded high growth rate reached 17 .6% in the first five months of 2019. This is attributed mainly to the high levels of liquidity in Indonesia, Turkey’s efforts to tap all available financing sources, and the return of Qatari and Saudi Arabian issuers to the market. Foreign currency issuances also increased 15.6% during the period, that are explained primarily by Turkey’s issuances and the issuances by Qatari banks and Saudi corporates (S&P, 2020). According to IIFM (2019), Sukuk Al Wakalah, is the most used structure since 2015. The following Chart shows the share of Wakalah among Sukuk issuances made up around 50.77% during 2010-2016 period. The share of Sukuk Al Ijarah continue to decline, as mentioned in the last Sukuk report, though in 2018 its share improved to 17% as compared to 12% in 2017. Figure 9 In spite of the attractive features of Sukuk as an alternative financial instrument especially in the Muslim countries, it still faces different obstacles to expand its share in the regional and global financial markets. The Issuers in the GCC -for example- continue to prefer conventional instruments since Sukuk are more complex instruments to issue compared with conventional bonds. Moreover, the less developed nature of local capital markets in the GCC means that many issuers prefer the international capital markets that adopt the traditional interest based bonds. Geopolitical risk still one of the main obstacles and reason of instability and growth for financial markets in general. The trade 14
15. war between US and other global economic players like China and Europe , and the Coronavirus in China at the beginning of 2020 had its undoubted negative effects also. At the end of the third quarter of 2019, Fitch rating agency reported that Sukuk issuance with a maturity of more than 18 months from the Gulf Cooperation Council (GCC) region, Malaysia, Indonesia, Turkey and Pakistan totaled USD30.6 billion in 9M19 compared with USD31.0 billion in 9M183. The GCC debt markets are still relatively developing compared to Malaysia that has remained the key source of Sukuk supply in 2019. The same report told that GCC debt markets are still relatively developing, and individual sovereign funding decisions can profoundly affect total supply (Fitch, 2019). Figure 10 The domestic market consists of longer tenor as well as short term Sukuk denominated in over 26 different currencies. The domestic market forms around 80.5% of the entire Sukuk market. Malaysia has continued its domination on market share of 71.34% of the total domestic Sukuk market for 2001 to 2018 period. The other major jurisdictions for domestic issuances in 2018 were Saudi Arabia, Indonesia, Sudan, Bahrain, and Turkey followed by 8.29%, 7.4%, 2.3%, 2.29%, 2.3% The issuance of Sukuk according to the issuer country shows that Malaysia stayed in the front with 47.9%, followed by Saudi Arabia which became important player in the Sukuk markets (MIFC, 2020a). 3 These figures do not capture the recent growth in domestic local-currency issuance, such as Saudi Arabia's riyaldenominated local issuance program. 15
16. Figure 11 4 .3 Sukuk in Malaysia as an international benchmark In early stage in 1983, the Malaysian Parliament passed the Government Investment Act to enable the government to raise funds through the issuance of non-interest-bearing certificates, known as GII. The first GII issuance took place in July 1983. The primary reason for the introduction of GII had been to enable Islamic banks to hold first-class liquid assets/instruments to meet the statutory liquidity requirements and also for investment. From that time Malaysia started to build its reputation as the hub for the most developed and mature Islamic financial industry, Malaysia became at the forefront and the leader of this kind of financial industry. The well-structured and internationally known sophisticated Islamic capital market and an advance legal and regulatory framework grant Malaysia this leadership. The financial services industry has been a key driver of Malaysia’s economic development as one of key economic areas under the country’s Economic Transformation Program, the national strategic initiative formulated by the government to elevate the country to developed-nation status by 2020 (COMEC, 2018). Malaysia is the dominated country and the pioneer in Sukuk, Malaysian government was the first to issue sovereign Sukuk for financing the public sector. Malaysia kept its dominance in the global Sukuk market, constituting 50.5% of the global Sukuk issuance. The young active country that is looking to compete with Malaysia in the Sukuk market is Saudi Arabia, which have a share of (19.9%) as at the end of October 2018 (IIFM, 2019). Malaysian Sukuk market gained a reputation as a dynamic and flexible, which called increasing number of foreign investors to capitalize on the strength of Malaysia’s Islamic capital market to issue regular short-term commercial papers to meet their ongoing financing needs. The Islamic Sukuk market in Malaysia provides customized solutions to sovereign and corporate issuers through a variety of Sukuk structures using different Islamic contracts such as Ijarah, Murabahah, Musharakah, Wakalah or hybrid structures based on combinations of Shari'ah contracts. The Sukuk structures are backed by real economic activity and has the ability to tap a wider investor base from both Islamic and conventional spectrum including foreign investors (IIFM, 2019). The domestic Sukuk market in Malaysia continues to serve as an important and attractive platform for government and corporate entities to raise long term funds for various economic, business and infrastructure development needs. It raised from RM 79.01 billion in 1H2017 to RM 99.36 billion 16
17. in the first half of 2018 . Corporate Sukuk issuances represented 75.22% of total corporate bonds and Sukuk issuances while corporate Sukuk outstanding accounted for 75.53% of total corporate bonds and Sukuk outstanding. Compared to other Islamic countries, Sukuk excelled the Interest based traditional bonds at the total outstanding volume or the issuance. As at end of November 2018, total Sukuk outstanding amounted to RM839.36 billion or 59.59% of total bonds outstanding while total Sukuk issuances by Government and corporates amounted to RM183.73 billion (ICM, 2018; IIFM, 2019). Figure 12 As at end of November 2018, corporate Sukuk outstanding reached RM499.89 billion compared to that of conventional bonds at RM158.36 billion, constituting 75.94% of total outstanding bonds. The total issuance of corporate Sukuk amounted to RM68.44 billion compared to that of conventional bonds at RM31.18 billion (ICM, 2018; IIFM, 2019). Figure 13 Malaysia is an international Islamic financial center. The Malaysia Global Sukuk Incorporation was the world’s first international Sukuk issued based on the concept of Ijara (Sukor, 2008). Under the Ijara concept, the financiers claim the role and responsibility of maintaining the underlying asset. Sukor (2008) explains, The Malaysian government has to encourage the private sector to be innovative in developing products and services that are in line with Shari'ah. It is also imperative that the accounting practices 17
18. adopted in the recording and reporting of Islamic bonds fully conforms to Shari 'ah requirements and principles. The Sukuk market in Malaysia consists of two main categories, the equity market and the bond market. These deal with corporate stock and shares, and public and private debt securities, respectively. The contracts which bind Sukuk in Malaysia are Murabahah, Bay Bithaman Ajil (BBA), Musharakah, Ijara (discussed above), and Istisna'a. The Murabahahh contract involves the financiers purchase of assets and the sale of the assets to the issuer. The BBA contract involves the issuer selling the assets to the financiers who then sell it to the issuer at an elevated cost. The Istisna'a contract involves an issuer and a contractor. Uncompleted assets’ ownership lies with the issuer and thereby, an issuer can sell these assets to financiers. Thereafter, the financiers can resell assets to the issuers. Malaysia ensures Shari’ah compliance in international Sukuk transactions through establishing itself as a hub for the Islamic capital market (Sukor, 2008). The country ensures that more products and services are introduced, together with Shari’ah compliant accounting, taxing, and regulatory frameworks. 5. Municipal Sukuk in Saudi Arabia 5.1 Background and rationality behind MuSk Despite the late institutional involvement of the financial markets as a key player in the Saudi economy in 2005 by establishing the Capital Market Authority CMA, the financial market in Saudi Arabia showed exceptional growth vertically and horizontally. Saudi financial market became one of world's biggest ten markets in less than fifteen years, it also managed the historical IPO for the biggest oil company in the world efficiently. These are just examples about the noteworthy improvements that were achieved by the Saudi financial market. Saudi market represented an exceptional phenomenon in financial markets at the global level. One of the remarkable developments in the Saudi financial market is the establishment of debt market and Islamic Sukuk market in the mid of 2009. The CMA has played the core role in developing this market, it keeps launching different initiatives to develop the Sukuk and Debt instruments market in the kingdom, it issued the Securities and Continuing Obligations Rules, as well as the introduction of regulatory requirements for listing through special purpose entities that allow the issuance of different debt instrument structures through public or private offerings. These developments included greater flexibility of the Sukuk and Debt instruments issuance requirements (Elkuwaiz, 2018). The interest in developing efficient debt market in Saudi Arabia is an important object for the CMA, Elkuwaiz (2018) stated that "The Sukuk and Debt Instruments market is one of our top priorities in the CMA due to its importance as a main channel of financing offered by the capital market." As a key pillar of the master national plan of the kingdom called Vision 2030, the Council of Economic and Development Affairs (CEDA) launched in 2017 the Financial Sector Development Program (FSDP) that aims at developing the national economy and contribute to achieving the remaining VRPs. The FSDP’s role is to create a diversified and effective financial services sector to support the development of the national economy, diversify its sources of income, and stimulate savings, finance, and investment (CEDA, 2017). Although the establishment of a debt market was in 2009, the government relatively came late after eight years when the Sukuk and Debt instruments, issued by the Government of the Kingdom of Saudi Arabia, were registered in the Saudi secondary market "Tadawul" during the first half of 2017. Saudi Arabia issued international Sukuk worth $34.5 billion and has issued approximately $25.6 billion in local Sukuk thus far in 2017 and 2018. 18
19. No evidence from the global experience prove using Sukuk in the financial structure of municipalities , it is used only in financing governmental expenses on the national level only, most of Sukuk issuances merged in financial structure as debt instruments for the sovereign debt with traditional bonds, as the case of Malaysia and recently in Saudi Arabia. We tried in this paper to suggest hybrid financing instrument (MuSk) that benefit from the long experience of traditional municipal bonds, at the same time capitalizing from the rich experience in adopting Sukuk as an acceptable Islamic financial instrument that have good dissemination in the Islamic countries and international financial markets. We don't claim that MuSk is totally a new instrument, but we see the increased need in Saudi Arabia and other Muslim countries who have high degree of religious sensitivity toward financial investment, which call for higher degree of mobilizing financial sources and increase the participation of household sector in the financial markets. According to the budget statement for the fiscal year 2020 in Saudi Arabia, expenses on municipal services has increased as the higher sector in government expenditures, it increased by 28.3% in from SAR 46 Billion 2018 (4.3% ) to SAR 59 Billion in 2019 (5.6%), where the targeted expenditure on this sector to decrease by 9.1% to SAR 54 Billion in 2020's budget(MOF, 2020). This calls for diversification of fund raising sources for municipalities and urbanized areas in the kingdom to reach the targeted decrease in expenditure on municipal sector, which represent great chance to introduce MuSk as a vehicle for that. The document of financial sector development program (FSDP) in Saudi Arabia pointed that this program will enable financial institutions to support private sector growth, ensuring the formation of an advanced capital market, and promoting and enabling financial planning, without impeding the strategic objectives intended to maintain the financial services sector’s stability (CEDA, 2017). One of the Vision 2030 aspirations is that "FSDP’s objective is to create a thriving financial sector that serves as a key enabler in achieving Vision 2030’s objectives. By 2030, the sector is expected to grow large enough to fund Vision 2030 objectives, offer a diverse set of products and services through traditional and newly emerging players, give citizens thus far excluded from the financial system access to it with an inclusive structure, achieve a high degree of digitization and maintain financial stability" (CEDA, 2017). The above aspiration along with the metrics and targets that are mentioned in details in the FSDP encapsulates developing new financial products like MuSk, that will add diversity and new players to the financial market. Besides, it will induce household sector and individuals to engage in the financial system through investing in MuSk, this meets the purpose of the household saving who will invest their savings in the MuSk. Adopting MuSk as a financial instrument in the capital market will participate in increasing the share of capital markets assets as a percentage of financial assets (total domestic market capitalization and outstanding debt issuances registered at the exchange). 5.1 Objectives, Key Drivers, Requirements 5.1.1 Objectives Through the application of the proposed model of MuSk as a customized kind of Sukuk, it's hoped to achieve several objectives, including: - Reducing the capital and operational financial burden of the municipalities and independent public service institutions that currently held on the general budget. - Enhancing the savings side of Saudi household sector by investing in these assets, which is in line with the general strategic goals of the Kingdom's 2030 vision as highlighted in the Financial Sector Development Program document. 19
20. - Developing the Saudi financial market in terms of diversifying investment financial assets and increasing liquidity , which contributes to achieving greater market efficiency. - Resettlement of financial investments within the Kingdom. - Diversification of investment alternatives for the public and private financial institutions and banks rather than relying on status que investments. - Provide safe and stable investment vehicles for families and individuals. - Deepening the sense of participation and social responsibility of individuals and families through their contribution to financing local projects of public benefit. - MuSk support governance and efficiency. It will help in using financial standards to evaluate the projects in addition to the current social standards. - Increase household participation in the economic activity. - As the issuances of MuSk will not consider part of the public debt (even though it may be backed by government) this will release the central government funds to another essential sectors. 5.1.1 Key Drivers We think that the economic and legislative conditions in Saudi Arabia encourage adopting MuSk. The above objectives can be achieved efficiently. The following key drivers support this viewpoint: 1- Launching MuSk in the Saudi capital markets is compatible with Vision 2030. It will participate directly and indirectly in achieving different goals of the national transformation plan. 2- Overwhelming trend to decrease the dependence on oil to procure funds for government expenditure. This is obvious as a main goal of Vision 2030. 3- Agile young financial market. The financial market in KSA witnessed giant steps from unorganized, week, and local capital market to be one of the first ten global markets in less than 15 years. 4- Vast volumes of liquidity in the Saudi banks. The local banks in the Kingdom enjoy high liquidity (Al-Khulaifi, 2019). This support the tendency for diversification of the portfolio of the Saudi local banks with secure and profitable securities (I,e MuSk). Saudi Islamic banks in particular will find it great chance to diversify its portfolios with Islamic financial instrument. More banks' intervention through MuSk will add more liquidity to the financial market. 5- Social acceptance of MuSk. The Saudi community is considered as one of the most committed communities to Islamic Shari'ah. Hence, Shari'ah compatible financial instrument as MuSk will be received positively, especially it is socially feasible as it will be used in developing local community. Increasing household and personal investment in MuSk directly achieve the goals of FSDP in the kingdom as this will increase the saving rate for the households. Moreover, it will achieve higher degree of financial literacy and involvement in the economic activity for women and more women economic independency and empowerment. 6- Flexible administration of the financial market that will help in suggesting any feasible development quickly. 5.1.2 Success Requirements In order to achieve the above benefits using MuSk in Saudi Arabia, some requirements should be considered:  Developing the legislations related to the MuSk premise, the municipal regulations, market capital rules, in addition to the endurance and support on the fiscal and monetary authorities side. 20
21.    Establishing specialized financial administrations in the municipalities and the other targeted entities. These administrations should be structured in a way close to the corporate financial affairs with some customizations. Specialized employees in financial management, investment and financial markets should be prepared in order to conduct the issuances of MuSk, in addition to other financial affairs. Marketing MuSk to the financial institutions and household sector is important. Since this is a new instrument in the market with religious aspects. As much as the targeted audience understand this instrument they will increase their investment in it. 6. Concluding Remarks We spend our effort in this article to enrich the current literature about the viability of Islamic finance implications for different sectors, and bring to the policy makers attention in Saudi Arabia the importance of adopting new style of Sukuk, we call it Municipal Sukuk, as a distinguished financial instrument between the traditional interest based municipal bonds and available Shari'ah compatible Sukuk in the financial markets as there's a gap in financing municipals and independent public services by Sukuk. Saudi Arabia witness nowadays structural economic change embodied by Vision 2030, a major objective of the Vision is to reduce the dependence on oil as the main source of funds for the state. Detailed programs launched since 2016 in order to encourage the government agencies to rationalize expenses and procure their own funding from untraditional sources and decrease the financing burden from the master budget. One of the main aspects of this master plan is related to the financial markets and developing its instruments. We conducted a thorough literature review and provide background about the traditional municipal bonds and Sukuk, referring in that for the most recent literature and reports issued by the specialized agencies and governments. Thereafter, viability and possibility of issuing MuSk by municipalities and independent public service institutions, in addition, adoption of this financing tool in the Saudi capital market has been discussed. The argument concentrated on the rationale behind adopting MuSk in the kingdom, supported by the expected objectives and key success factor and implication requirements. We strongly suggest MuSk as it help Municipals to manage its resources efficiently, and intercept with many goals of the Saudi NTP, which contribute in the national effort to modernize Saudi economy to achieve the main objectives of Vision 2030. 21
22. References AAOIFI . (2019). Financial accounting standard (FAS) 33 “Investments in Sukuk, Shares and Similar Instruments”. In Definitions 4.O (Vol. FAS 33). Bahrain. Abdelkafi, R., & Bedoui, H. E. (2016). Challenges in Infrastructure Financing Through Sukuk Issuance. Retrieved from Al-Khulaifi, A. (2019). Saudi banks enjoy high liquidity: SAMA chief [Press release]. Retrieved from http://saudigazette.com.sa/article/580394 Aman, A. U., Naim, A. M., & Isa, M. Y. (2019). What Determines Sukuk Market Development? New Theoretical Insights. Global Review of Islamic Economics and Business, 7(1), 021-027. Ang, A., Green, R. C., Longstaff, F. A., & Xing, Y. (2017). Advance refundings of municipal bonds. The Journal of Finance, 72(4), 1645-1682. Babina, T., Jotikasthira, C., Lundblad, C. T., & Ramadorai, T. (2019). Heterogeneous taxes and limited risk sharing: Evidence from municipal bonds. Available at SSRN 2579350. Bhuiyan, R. A., Rahman, M. P., Saiti, B., & Ghani, G. B. M. (2019). Does the Malaysian Sovereign sukuk market offer portfolio diversification opportunities for global fixed-income investors? Evidence from wavelet coherence and multivariate-GARCH analyses. The North American Journal of Economics and Finance, 47, 675-687. Burhanuddin, S. (2009). Sharia Capital Market: Legal Review. Malaysia: Yogyakarta: UII Press Yogyakarta. Cebula, R., & Nair-Reichert, U. (2018). Impact of federal income tax rates and government borrowing on nominal interest rate yields on tax-free municipal bonds. Journal of Financial Economic Policy. CEDA. (2017). Financial Sector Development Program.: Council of Economic and Development Affairs - KSA Retrieved from https://vision2030.gov.sa/sites/default/files/attachments/170719%20FSDP%20Program%20Book%2 010%20May%202018%20English%20V3.pdf. COMEC. (2018). The Role of Sukuk in Islamic Capital Markets. Retrieved from Elkuwaiz, M. (2018). The CMA Approves Listing of (SR. 204.385) billion worth of Sukuk and Debt Instruments Issued by the Government of the Kingdom of Saudi Arabia [Press release]. Retrieved from https://cma.org.sa/en/MediaCenter/PR/Pages/GOVERNMENT-DEBT-INSTRUMENTS.aspx Feng, X. (2013). Local government debt and municipal bonds in China: Problems and a framework of rules. The Copenhagen Journal of Asian Studies, 31(2), 23-53. Fitch. (2019). Fitch Ratings: International Sukuk Issuance Volumes Steady So Far in 2019 [Press release]. Retrieved from https://www.fitchratings.com/site/pr/10098247 Goebel, J. (2017). Municipal bonds for infrastructure development in South Africa. discussion document, prepared for SALGA and GIZ, available at: www. salga. org. za. Hasan, R., Ahmad, A. U. F., & Parveen, T. (2019). Sukuk risks–a structured review of theoretical research. Journal of Islamic Accounting and Business Research. ICIFE. (2019). Global Islamic Finance Markets Report 2019. Retrieved from Malaysia: https://www.icife.org.my/global-islamic-finance-markets-report-2019/ ICM. (2018). Total Sukuk Issued and Total Sukuk Outstanding. Retrieved from IIFM. (2019). A Comprehensive Study of the Global Sukuk Market. Retrieved from Bahrain: https://www.iifm.net/wp-content/uploads/2019/08/IIFM-Sukuk-Report-8th-Edition_4.pdf INVESCO. (2019). US Municipal bond market recap and outlook. Retrieved from https://www.invesco.com/usrest/contentdetail?contentId=d9ae4103dac81610VgnVCM1000006e36b50aRCRD&dnsName=us Jiang, X. W. (2019). The Impact of Government Intervention on Municipal Bond Liquidity Premium: Evidence from China. Applied Economics and Finance, 6(3), 79-86. Kabir, S., Uddin, M. H., Hassan, M. K., Hossain, M. S., & Liu, J. (2019). Common Risk Factors in Returns on Sukuk Investment. Khartabiel, G., Abu-Alkheil, A., Ahmad, T. S. T., & Khan, W. (2019). Shari’ah-compliant Sukuk versus conventional bond announcements: is there a wealth effect? Review of Quantitative Finance and Accounting, 1-15. Khudari, M., & Saad, N. M. (2019). Sukuk Issuance in the Emerging Markets-A Relative Evaluation. International Journal of Engineering and Advanced Technology, 9(1), 3571-3574. 22
23. Kozak , S. (2019). The Use of Municipal Bonds in Financing Regional Economic Development in Poland. Economic and Regional Studies/Studia Ekonomiczne i Regionalne, 12(3), 254-264. Latham & Watkins, L. (2017). The Sukuk Handbook: A Guide To Structuring Sukuk. In. Retrieved from https://www.lw.com/thoughtLeadership/guide-to-structurings-sukuk Li, Y., Zhang, X., & Chang, X. (2018). Creating the Chinese Version of “Municipal Bonds”. In China's National Balance Sheet (2015): Leverage Adjustment and Risk Management (pp. 205-218): Springer. Malikov, A. (2017). How Do Sovereign Sukuk Impact on the Economic Growth of Developing Countries? An Analysis of the Infrastructure Sector. In Critical Issues and Challenges in Islamic Economics and Finance Development (pp. 1-37): Springer. Martell, C. R., & Guess, G. M. (2006). Development of Local Government Debt Financing Markets: Application of a Market‐Based Framework. Public Budgeting & Finance, 26(1), 88-119. Medda, F. R., & Cocconcelli, L. (2018). Municipal bonds as a means of accelerating local infrastructure investment. Proceedings of the Institution of Civil Engineers-Management, Procurement and Law, 171(5), 220-227. MIFC. (2020a). Global Sukuk Outstanding 2010-2019. In. : Malaysia International Islamic Financial Centre (2020b). Performance of Global Sukuk Market in 2019 [Infograph] MOF. (2020). Saudi Arabia's 2020 budget statement. Saudi Arabia: Ministry of Finance Retrieved from https://www.mof.gov.sa/en/financialreport/budget2020/Documents/Bud-Eng2020.pdf. Mohd-Rashid, R., & Tajuddin, A. H. (2019). Sukuk: Introduction and global performance. In Islamic Corporate Finance (pp. 123-135): Routledge. MSRB. (2019). Municipal Bonds Fact Sheet. Retrieved from http://www.msrb.org/EducationCenter/library/pdfs.aspx MSRB. (2020). Sources of Repayment for Municipal Bonds. Retrieved from https://www.msrb.org/EducationCenter/Municipal-Market/About/Overview/Sources-ofRepayment.aspx Muhmad, S. N., & Muhmad, S. N. (2018). Potential Development of Sukuk in Competitive Market. International Journal of Business and Management, 2(2), 26-29. Nagano, M. (2016). Who issues Sukuk and when?: An analysis of the determinants of Islamic bond issuance. Review of Financial Economics, 31, 45-55. Nisar, S. (2018). Islamic Bonds (Sukuk) and its Applications. Wealth: International Journal of Money, Banking & Finance, 7(2). NTP. (2016). National Transformation Program. Retrieved from https://vision2030.gov.sa/en/programs/NTP. Oji, C. K. (2015). Bonds: A Viable Alternative for Financing Africa's Development. Platz, D. (2016). Promoting municipal bonds in developing countries-a realistic donor strategy towards sustainable development? Development Finance Agenda (DEFA), 2(2), 4-5. Qizam, I., & Fong, M. (2019). Developing financial disclosure quality in sukuk and bond market: Evidence from Indonesia, Malaysia, and Australia. Borsa istanbul review, 19(3), 228-248. Razak, S. S., Saiti, B., & Dinç, Y. (2019). The contracts, structures and pricing mechanisms of sukuk: A critical assessment. Borsa istanbul review, 19, S21-S33. S&P. (2020). Islamic Finance Outlook 2020. Retrieved from https://www.spglobal.com/_assets/documents/ratings/research/islamic_finance_2020_screen.pdf Schwert, M. (2017). Municipal bond liquidity and default risk. The Journal of Finance, 72(4), 1683-1722. SIFMA. (2011). The Fundamentals of Municipal Bonds (6 th ed.). New Jersey: John Wiley & Sons. SIFMA. (2020). US Municipal Issuance Survey 2020. Retrieved from https://www.sifma.org/resources/archive/research/ Singh, P., & Kathuria, R. (2016). Infrastructure and Connectivity in India: Getting the basics right. Asian Economic Policy Review, 11(2), 266-285. Smaoui, H., & Nechi, S. (2017). Does sukuk market development spur economic growth? Research in International Business and Finance, 41, 136-147. Sukor, M. E. A., Muhamad, R., & Gunawa, A. Y. (2008). Malaysian Sukuk: issues in accounting standard. Jurnal Syariah, 16(1), 63-74. 23 View publication stats