What is a sukuk market?

A sukuk is a sharia-compliant bond-like instruments used in Islamic finance. Sukuk involves a direct asset ownership interest, while bonds are indirect interest-bearing debt obligations.

What is the full meaning of sukuk?

Sukuk (Arabic: صكوك, romanized: ṣukūk; plural of Arabic: صك, romanized: ṣakk, lit. ‘legal instrument, deed, cheque’) is the Arabic name for financial certificates, also commonly referred to as “sharia compliant” bonds.

How big is the sukuk market?

According to the Refinitiv Sustainable Islamic Finance App, the current ESG and green outstanding sukuk market stands at over $15bn. The map shows outstanding ESG sukuk globally. Saudi Arabia is the largest market.

Why do companies issue sukuk?

Because Islamic finance requires each commercial transaction to be backed by real assets, sukuk need to be structured with a special purpose vehicle (SPV). The SPV buys the underlying assets of the investment project to the firm by raising funds from investors that are entitled with certificates of ownership.

What is the difference between bonds and sukuk?

Sukuk are Sharia-compliant financial certificates through which investors gain partial ownership on an issuer’s assets until the Sukuk maturity date. While Bonds are financial certificates through which investors lend money to the issuer, indicating an obligation for repayment at maturity date.

What is sukuk and how does it work?

Sukuk are structured based on the specific contract of exchange of the Shariah-compliant assets. Such contracts can be made through the sale and purchase of an asset based on immediate, instamental or deferred payment, leasing of specific assets or participation in joint-venture businesses.

Is sukuk debt or equity?

In theory, sukuk represent a form of equity as they represent certificates conferring ownership to holders of an asset or pool of assets or claim to its cash flows. In practice, they have become known as Islamic bonds with their investors holding debt.

Is sukuk a good investment?

A sukuk provides regular payments (i.e. on a yearly, semi-annually or quarterly basis) to its investors. These payments are fixed and pre-determined, which makes sukuk a good investment if you need predictable income on a regular basis.

What are the features of sukuk?

Sukuk is a financial instrument that shares characteristics with bond and stock which are issued to finance trade or the production of tangible assets6 . Similar to a bond, Sukuk has a maturity date and in some of them the holder will receive a regular income over the period and a final payment at the maturity date.

Why do companies choose sukuk?

Firstly, sukuk are certificates that represent undivided shares in ownership of a particular project, issued for the purpose of establishing or financing a business. The sukuk holder is entitled to all rights conferred by Shariah to an owner over property.

How does a sukuk work?

Sukuk represent certificates of equal value that evidence undivided ownership or investment in the assets using Shariah principles and concepts endorsed by the Shariah Advisory Council. Essentially, when you invest in Sukuk, your money is put into the assets of a project or investment in order to generate profit.