SEC seeks to boost Islamic finance

MANILA, Philippines — The Securities and Exchange Commission (SEC) is paving the way for sukuk issuances in the Philippines to boost the Islamic capital market.

The SEC has issued for public comment proposed guidelines on the issuance and disclosure of sukuk, which will provide a regulatory framework for sukuk issuances in the country, ensuring Shari’ah compliance and investor protection.

The draft introduces enhanced disclosure standards, clearer Shariah governance mechanisms, and strengthened investor safeguards, all aligned with international sukuk practices.

Sukuk refers to certificates of equal value that represent an undivided investment, interest in, or rights to, the underlying assets, usufructs, and services, or projects undertaken in accordance with Shari’ah principles.

The SEC said that the draft guidelines will apply to all sukuk issuances that are not exempted under Section 9 of the Securities Regulation Code (SRC).

Under the draft guidelines, sukuk intended for public offering should be registered with the SEC and may be listed, traded, and settled in accordance with the rules of an SEC-registered exchange, fixed-income market, or other registered organized market.

Special purpose entities incorporated and registered with the SEC and compliant with SEC regulations may be created specifically for sukuk issuances.

These entities should be incorporated separately from the originator and established primarily for the issuance of sukuk and the holding of assets for sukuk holders.

In addition, they should adhere to international standards for sukuk issuance, including Shari’ah principles.

Also included as eligible issuers of sukuk are publicly listed companies and non-listed stock corporations; the national government, its agencies or instrumentalities; local government units; government-owned and -controlled corporations; banks supervised by the Bangko Sentral ng Pilipinas, including Islamic banks; and special purpose entities formed by such entities, consistent with the exemptions under the SRC.

The SEC said the measures aim to ensure transparent sukuk structures, safeguard investor interests and align local issuances with global Islamic finance standards.

The issuance of sukuk may be made using Shari’ah-compliant structures, including Sukuk Ijarah (lease-based sukuk), wherein assets are sold and leased back to the issuer; Sukuk Murabahah (cost-plus margin financing sukuk) for fixed-price sales transactions; and Sukuk Istisna (financing sukuk) to raise funds for manufacturing or construction projects.

Also allowed are structures such as Sukuk Wakalah bil Istithmar or agency-based sukuk wherein a wakeel (investment agency) is appointed to invest on behalf of holders in specified assets; Sukuk Mudarabah or profit-sharing sukuk, where one party provides funds and the other expertise; and Sukuk Musharakah or joint venture sukuk representing co-ownership of assets or projects.

The SEC said that issuers must ensure that all contracts, asset arrangements and transaction flows are supported by clear documentation demonstrating Shari’ah compliance.

Issuers will either establish their Shari’ah Committee or appoint a Shari’ah advisor to certify that the sukuk structure and underlying assets comply with Shari’ah principles, the commission said.

The Shari’ah Committee or advisor will provide guidance and oversight to ensure that all aspects of the sukuk transaction, from issuance to maturity, adhere to Shari’ah principles and will oversee the monitoring and audit of the Shari’ah compliance.

The oversight mechanism is designed to maintain market integrity and foster investor confidence in Islamic capital market instruments.

The public may provide comments on the draft memorandum circular until Dec. 12.