Purchase Undertaking in Equity-Based Sukuk: Does It Amount to Guarantee

Abstract

Purchase undertaking has been adopted widely in sukuk product especially with regard to the equity-based sukuk, structured under Mudharabah, Musyarakah or Wakalah contracts. Undoubtedly, the objective is to minimize the risks faced by investors in holding the sukuk asset throughout the period. Indeed, the value of the sukuk underlying asset is not stable. On the other, hand, the sukuk issuer could not provide direct guarantee as this is against the principle of those contracts. Thus, the purchase undertaking is utilized here to preserve the value of the asset so that the investors will regain their capital plus the profit at the end of the maturity period. This practice has been seen as contentious since the purchase undertaking applied here is just like a guarantee of capital which is not allowed in Sharicah. Therefore, this paper aims to study the practice of the purchase undertaking as applied in equity based sukuk whether it amount to guarantee and thus prohibited or not. Finally, this paper will explore some practical solution for the issue.