ISLAMIC FINANCE IN JAPAN NEW LEGISLATIVE FRAMEWORK FOR SUKUK ISSUANCE

islamic financeOn 17 May 2011, the National Diet of Japan passed a bill to facilitate Sukuk issuances in Japan.  The bill is intended to implement a solid legal framework to issue Sukuk out of Japan.  Relevant tax legislation is also amended so as to create a level tax playing field for Sukuk compared to conventional bonds. This new legal framework will help provide new opportunities for both Islamic investors across the globe and Japanese institutions seeking to diversify their funding sources.  The framework is built on existing legislation that is originally tailored for asset backed securitisation.  The legal structure, therefore, bears different features from the structures established under English trust law which is often used in the cross-border Sukuk issuance practice.  This distinctive nature of the legal framework may pose challenges to its application.  Nevertheless, this framework will be a driving force to enhance accessibility to the Islamic finance market from a country where Islamic institutional investors are effectively non-existent.