Sukuk and capital markets

Special purpose vehicle (SPV)

A legal entity set up only for a specific transaction, such as holding sukuk assets for the holders, and kept apart from the originator.

A special purpose vehicle, or special-purpose entity, is a legal entity created solely for a particular financial transaction or series of transactions. The IFSB's capital adequacy standard says it may take the form of a limited partnership, limited liability company, trust, corporation or fund, that in sukuk it typically holds the assets on behalf of the holders, for example as their agent, and that it should be bankruptcy-remote from the originator. An operating company with other assets and liabilities is not suitable for this role, because its other creditors could interfere with the holders' rights.

Sources

IFSB-23 Revised Capital Adequacy Standard (Banking Segment), 2021: Special-Purpose Entity, paragraphs on the SPE in sukuk

This entry explains a term; it is not a Shariah ruling. Approving a product is for each institution's own Shariah board and regulator.

Related terms

SukukCertificates of equal value representing undivided shares in the ownership of assets, usufruct, services or a project.Sukuk al-ijarahSukuk whose holders own leased assets and receive the rent paid by the lessee as their return.Asset-backed and asset-based sukukThe distinction between sukuk whose holders have real recourse to the assets and those relying mainly on the obligor's promise to pay.Purchase undertakingA unilateral promise by the originator or obligor to buy the sukuk assets from the holders at maturity or on default.Investment trustee (sukuk)The intermediary that protects sukuk holders' interests, supervises the issue manager and keeps documents and guarantees safe.