The Department of Justice (DOJ) has declared that there is no legal impediment on the plan of the Department of Finance (DOF) to issue other Islamic financing instruments to broaden investors’ participation in the market.
THE Department of Justice has declared that there is no legal impediment on the plan of the Department of Finance to issue other Islamic financing instruments to broaden investors’ participation in the market.
“The Secretary and the DOF are given broad powers to find creative ways to tap other markets, and broaden the country’s investor base, and the issuance of Sukuk is a valid exercise of such power,” it added. Ijarah is commonly known as sale and leaseback financing structure, which involves the sale of a tangible and unencumbered asset owned by the Republic that is then leased back to the Republic for its use.The revenue stream that will come from rental payments to be paid by the lessee will represent the “interest” or earnings of the financing transaction.
The Wakalak structure, according to the DOF, has seen a steady growth in use due to its flexibility in asset type, often being used by sovereign issuers such as Malaysia and Indonesia. “As such, from a pricing perspective, outstanding ROPs are expected to be used as benchmark and possibly achieve pricing parity between ROPs and Sukuk,” the DOF said.IN upholding the legality of the DOF’s position, the DOJ noted that Republic Act 11439 does not prohibit the use of Sukuk structures by the government or private entities as long as they are Shari’ah compliant.
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