THE SUKUK

Tracking the progress of sukuk
The sukuk’s popularity has skyrocketed since debuting a mere few years ago. Bilal Aquil charts the progress of sukuk issues and discusses how they have become so widely used in the Gulf states
Islamic capital markets are booming, demonstrated by the increase in sukuk issues. The current sukuk issuance is about US$10bn and
growing at an unprecedented rate. Recent sukuk issues have been oversubscribed—in some cases by 150%,
which illustrates the potential of this instrument.
Sukuk is commonly described as an “Islamic bond”. However, this is a very general definition, and it would be better described as Islamic investment certificates (sukuk certificate), which represent an undivided beneficial ownership of an underlying asset. It is important to make this distinction, as it is not an alternative to an interest-based security.
Sukuk allows Islamic institutions to invest in compliance with the Shariah (Islamic law), which means avoiding payment and receipt of riba (interest or making unjust enrichments), avoiding gharar (gambling or speculating future outcomes) and not investing in haram (forbidden) businesses. The Shariah encourages trade and making a lawful return on capital if the capital provider is prepared to share the risks in the business venture.
Other Islamic prohibitions include the trading of debt contracts at a discount and forward foreign exchange transactions (which involves risk and speculation). The structure of each transaction has to be approved by a board of Shariah scholars and, therefore, be compliant with the principles of Islamic finance.
( islamicbankingandfinance.com)