Ṣukūkstructure for deficit financing during COVID-19 crisis
Authors: Sa’ad Auwal Adam , Muneeza Aishath , Haron Razali , Othman Anwar Hasan Abdullah 
Published: September 2022

PurposeThis paper identified theṣukūkstructure suitable for deficit financing during the COVID-19 crisis. The study also explored the relevant Sharīʿah contracts that could be utilized to issueṣukūkthat is suitable for various jurisdictions and corporations in handling deficit financing during the COVID-19 crisis.Design/methodology/approachThe authors have adopted a qualitative research approach in which primary and secondary sources available on the subject were reviewed, especially a number of cases related toṣukūkstructures prior to and during the COVID-19 crisis and analyzed their performances and drawn their conclusions.FindingsThe outcome of this paper suggests that certainṣukūkstructures used during the COVID-19 crisis aimed primarily at financing deficit have been successful. Furthermore, theseṣukūkstructures are relied very much on the obligator’s/issuer’s cash flow position. It has been revealed that if theṣukūkis structured on equity-based contracts with lower repayment amount or no payment, it would not trigger default because the nature of thisṣukūkis the sharing of profit and loss, in accordance with a Sharīʿah rule that there will be compensation for any loss only if deliberate and notable negligence is proven. However, if it is debt based or ijarah and wakalah contracts, then the payment toṣukūkholders ought to be made as agreed and if not, it will trigger default. This payment is to be made from the cash flow of the issuer and if there is an issue in the cash flow of the issuer due to COVID-19, consent from theṣukūkholders needs to be obtained to reschedule payment as found in the case of the Garuda Indonesiaṣukūk. However, as found in MASB’s IMTNṣukūkcase, if the cash flow of the company is good, then the chances of default are very slim. However, so far, three newṣukūkin the middle of COVID-19 were issued, one by a corporation and two issued by a sovereign, one of which addresses the liquidity issues during the pandemic, and all these proved thatṣukūkis definitely a viable alternative mode for deficit financing and a reliable option during the COVID-19 pandemic.Research limitations/implicationsThis paper looked into theṣukūkstructure, especially theṣukūkwhich are yet to mature and the newṣukūkissued during the crisis caused by the COVID-19 pandemic.Practical implicationsIt is anticipated that the outcome of this research will assist the stakeholders inṣukūkmarkets to understand theṣukūkimpact on COVID-19 related deficit financing and suggest various structures that could be utilized in theṣukūkmarket in an unprecedented situation such as the COVID-19 economic distress.Social implicationsLooking at the social aspect ofṣukūkmarkets, this paper has endeavored to provide solutions to the financing of deficit for social well-being as a tool to provide relief and social stability in the lives of the people.Originality/valueThe novel COVID-19 pandemic has caused unprecedented economic difficulties and market distress on a global scale; and this research sought to identify the relevantṣukūkstructures to be used for deficit financing during the pandemic crisis, especially theṣukūkwhich are yet to mature and newṣukūkissued during the pandemic crisis. The former includes HDFCMuḍārabah ṣukūk(2019) Maldives and MAHBṣukūk/IMTN program (2010) Malaysia, while the latter includes IsDB Trust Certificates, Phase 2 of the tranches (2020), the Federal Government of Nigeria Roadṣukūk(May, 2020) and Sharj’ah Government two billion Dirhamṣukūk(June, 2020).