Sukuk, often referred to as Islamic bonds, is a financial certificate that represents a proportionate ownership in a tangible asset, usufruct, service, or investment project, structured in compliance with Islamic Shariah law, which prohibits the payment or receipt of interest.
Sukuk is designed to generate returns to investors without contravening Islamic principles, primarily through asset-backed or asset-based structures, allowing for the sharing of profits and losses from the underlying asset or venture.
Unlike conventional bonds that signify a debt obligation, Sukuk signify ownership in an asset, project, or business, with returns derived from the actual economic activity generated by the asset rather than fixed interest payments.
Each Sukuk certificate gives the holder a share of ownership in the underlying asset, entitling them to a portion of the earnings generated by that asset, which can be in the form of rental income, profits from sales, or other income reflective of the asset's performance.
Sukuk issuances are governed by a detailed Shariah-compliant contract specifying the nature of the investment, the rights and obligations of all parties involved, and the distribution of profits, as well as the procedures for asset liquidation and dissolution of the Sukuk upon maturity.
The market for Sukuk has grown significantly, offering a crucial funding mechanism for Islamic finance entities, governments, and corporations looking to raise capital while adhering to Islamic financial principles, thereby broadening the investor base to include both Islamic and conventional investors.
By providing an ethical investment framework, Sukuk serve not only as a financial instrument but also as a means of promoting sustainable and socially responsible investment practices in line with Islamic ethical considerations.
The diversity of Sukuk structures caters to various financing needs and investor preferences, encompassing real estate, infrastructure projects, and sovereign financing, among others, demonstrating the flexibility and adaptability of Islamic finance solutions.