The subprime mortgages crisis and Islamic securitization

Islamic securitization based on the different structures of musharaka and mudaraba sukuk derived asset securitization is examined and its risk-sharing nature discussed. The study reveals that although sukuk are structured in a similar way to conventional asset-backed securities, they can have significantly different underlying structures, provisions and Shari’a compliances. Islamic securitization can be broadly divided into two types – debt based and partnership. This study reveals that sukuk structures based on partnership are regarded as risk-sharing and not risk shifting. By combining risk-exposures, they ensure that overall risk will be less than total risks on an individual basis. Sukuk can prove to be a viable source of funds to stabilize the securities market and serve as a solution to the current subprime mortgage crisis.