Analysis of Profits Obtained from Sukuk Investment using Ijarah and Musyarakah Mutanaqisah Concepts

Abstract

Musyarakah and ijarah are among the popular models of sukuk and musyarakah mutanaqisah is an improvised model of musyarakah currently available in financing only. In musyarakah mutanaqisah, if the same model is to be applied to sukuk, the periodic payments made by issuer to the investor are for the payments of profit and to buy out the ownership of the asset. In this paper we compared the amount of profits obtained from investment in sukuk by using ijarah and musyarakah mutanaqisah principles. Some mathematical formulas for the computation of profits for the two models are used. The data for the study is taken from the Bank Negara website for a sukuk with 4.5% coupon rate, five-year tenure and AA rating. From the analysis done, we found that the profit obtained under the musyarakah mutanaqisah model is higher compared to the one under ijarah. Hence, we think musyarakah mutanaqisah principle should be seriously considered as an alternative to other Islamic concepts already available in the sukuk market.