Advantages And Disadvantages Of Sukuk

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Introduction Sukuk is an Islamic bond and it is an Islamic financial certificate which derived from the work Sahk, which can mean legal instrument, deed and cheque. First transaction of Sukuk started in Damascus, Syria in the Great Mosque of Damascus in 7th century. Sukuk is a certificate of equal value, which represents undivided shares in ownership of tangible assets, service and other. According to the IFSB said that Sukuk is a certificate that represents the older proportionate ownership in an undivided part of an underlying asset where the holder assumes all rights and obligations to such asset. The Muslim societies of the pre-modern period used sukuk as forms of papers representing financial obligations originating from trade and other…show more content…
Furthermore, those who buy and sell conventional bonds are often interested in what is actually being financed through the bond issue, which could include activities and industries that are thought haram such as the production or sale of alcohol. Companies that are highly leveraged with bank debt may look for refinancing through issuing bonds, but such companies are not regarded as suitable for Muslim investors. Also, the purpose of using the bond is to increase the capital or gain more profit with fixed interest rate and the main risk of holding conventional bond is of payments default, but this risk is usually assessed only on the basis of credit ratings with the ratings agency rather than the bond purchaser estimating the risk. Later the bonds are regarded as simple pieces of paper with third parties estimating the risk and the purchaser at best, only making a risk or return calculation without any reference to the business being…show more content…
The sector is gaining in the Western world, also is evident from certain developments in Europe and the United States. Many countries in Europe such as the United Kingdom and France are working on a legal framework to develop a market for Islamic finance in order to become one of the Islamic financial centers of Europe. These European countries have made efforts to change their legislation to facilitate Islamic financial products and capitalize on the growth of the sector. Sukuk is considering as Islamic bonds, there is a major difference between a sukuk structure and a conventional bond structure. The main reason for these differences has to do with the fact that all Islamic financial products must meet certain Sharia principles. People who by a sukuk they will get many benefit from it, for example the will receive profit and there is no interest payment, which is in the conventional bonds. Moreover, sukuk holders are trading their ownership in the capital markets by selling the sukuk and not just a debt claim. So, there is no riba in such sukuk transactions and the structures are allowed from a Sharia

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