According to Khalid Hamad, chairman of the IIFM in an interview with Arabian Business, the International Islamic Financial Market (IIFM) is considering issuing a master agreement for asset-backed sukuk in the next 12 to 18 months. This would be a significant step for the industry, which has until now relied heavily on asset-based sukuk.
The main difference between the two is similar to the difference between unsecured and secured debt. Asset-based sukuk use an asset (e.g. in a leasing transaction for an ijara sukuk) to create the stream of coupon payments to investors. However, they give the investors only beneficial (in contrast to legal) ownership of the asset through an SPV and are generally guaranteed by the issuer (which is responsible for lease payments and retains legal ownership of the asset).
I have occasionally thought that the asset-based structure is misleading to investors, especially when coupled with the cheerleading about how Islamic finance generally is "asset-backed", in contrast to conventional finance. The offering circulars for asset-based sukuk are clear with regards to the investor's rights to recourse against the underlying asset: they don't have any. However, the industry has not dissuaded the media from repeating the idea that Islamic finance is based on tangible assets rather than just debt. In asset-based structures, the sukuk are nothing more than a re-structured debt; the issuer's full faith and credit is all that stands behind these instruments. There is no asset except to characterize the relationship between borrower and creditor; it is an unsecured transaction.
It is always better that investors are clear about their rights in a financing transaction like a sukuk, so the IIFM master agreement should make it easier to issue asset-backed sukuk that do give investors recourse against the underlying asset. However, this is not sufficient to cure the deficiency in the asset-based sukuk space. The industry needs to make it more transparent that there can be secured and unsecured transactions in the sukuk market.
There is nothing inherently wrong with an unsecured obligation through a sukuk. In fact, the disguised asset backing of asset-based ijara sukuk may discourage other forms of sukuk that are favored by some (e.g. mudaraba and musharaka) because they are not backed by (or based on) an asset. Why would an investor choose to invest in a mudaraba sukuk with a similar coupon, risk profile and rating as an ijara sukuk if the returns on the former are just based on the success of a risky enterprise whereas the latter was based on rent paid on a building? After all, the building is a tangible asset that should make payment more likely than a business venture lacking an asset.
However, a careful reader of the ijara sukuk offering circular would notice that the ijara sukuk does not transfer any ownership of the asset; only the right to receive rental payments from the issuer for the use of the building. The final redemption payment is entirely based on the issuer's ability at that time to repurchase the beneficial ownership of the building (which is based on the underlying issuer's ability to generate free cash flow). Is that as different a risk profile from a mudaraba sukuk which (under the new AAOIFI rules) can force investors to take a loss on the underlying business? If the business cannot generate free cash flow, the investors in both sukuk will have their principal at risk; the underlying asset does not factor much into the risk analysis for the investor. Yet ijara sukuk have nearly captured the sukuk market.
If the IIFM issues a master agreement that makes asset-backed sukuk easier to issue, I would hope that more ijara sukuk would be issued in an asset-backed framework and the unsecured sukuk would be issued using a mudaraba (or musharaka) structure. That would make them more coherent from an operational perspective. In an ijara you lease an asset you own to someone else; in a mudaraba or musharaka, you invest funds in a business without recourse to the business unless it is wound up in bankruptcy and your return can be smoothed out using reserve accounts over a specified period until you are bought out (redemption). It would also give a clearer difference to investors about their rights rather than the somewhat opaque asset-based versus asset-backed distinction used today.
 Note: This is a generalization as it ignores the differences between leasing assets for use versus using a lease as a financing mechanism within conventional and Islamic finance.