Sukuk is the Arabic name for a financial certificate but can be seen as an Islamic equivalent of bond. However, fixed income, interest bearing bonds are not permissible in Islam, hence Sukuk are securities that comply with the Islamic law and its investment principles, which prohibits the charging, or paying of interest. Financial assets that comply with the Islamic law can be classified in accordance with their tradability and non-tradability in the secondary markets. This is a sub-article of fiqh and Law and economics. ... This is a sub-article of Islamic economical jurisprudence. ... In states ruled by Islamic law, jizya or jizyah (Arabic: جزْية; Ottoman Turkish cizye) is a per capita tax imposed on able bodied non-Muslim men of military age. ... In Sharia (Islamic Jurisprudence) from the arabic نصاب is the amount which savings or capital or product must exceed in order for the muslim owner to be obliged to give Zakat (Charity). ... Khums (derived from the Arabic خمس or five) is a Shia article of faith that refers to a one-fifth tax, which all adult Muslims who are financially secure and have surplus in their income normally have to pay on annual savings, net commercial profits, and all... Sadaqah is a Islamic Term that means voluntary charity. See also Alms Zakat Khums Category: ‪Islam-related stubs‬ ... A waqf (Arabic: وقف, plural awqāf) is an inalienable religious endowment in Islam, typically devoting a building or plot of land for Muslim religious or charitable purposes. ... Bayt al-mal is an Arabic term that is translated as House of money. ... This is a subarticle to Islamic economics. ... Riba is the (Arabic: ربا ) term for intrest, the charging of which is forbidden by the Quran here, among other places: And that which you give in gift (loan) (to others), in order that it may increase (your wealth by expecting to get a better one in return) from other... Murabaha is defined as a particular kind of sale, compliant with shariah, where the seller expressly mentions the cost he has incurred on the commodities to be sold and sells it to another person by adding some profit or mark-up thereon which is known to the buyer. ... Takaful - Islamic Insurance ==]] “The basic fundamentals underlying the Takaful concept are very similar to cooperative and mutual principles, to the extent that the cooperative and mutual model is one that is accepted under Islamic Law. ... This is a sub-article to Islamic economical jurisprudence and inheritance. ... Islamic politics is the profession of Muslim politicians. ... Marriage in Islam is considered to be of the utmost importance. ... Islamic criminal jurisprudence is the Islamic criminal law. ... This is a sub-article to Islamic jurisprudence and etiquette. ... Islamic theological jurisprudence is the filed of Islamic jurisprudence specialized in theological issues. ... This is a sub-article to fiqh and Hygiene Hygiene in Islam is a prominent topic but one which non-Muslims are not very familiar with. ... Arabic ( or just ) is the largest living member of the Semitic language family in terms of speakers. ... A certificate is an official document affirming some fact. ... Islam (Arabic:  ) is a monotheistic religion based upon the teachings of Muhammad, a 7th century Arab religious and political figure. ...

Conservative estimates suggest that over $700 - 900 bn of assets are managed according to Islamic investment principles [1]. Such principles form part of ‘Shari’ah’, which is often understood to be ‘Islamic Law’, but it is actually broader than this in that it also encompasses the general body of spiritual and moral obligations and duties in Islam.

A traditional instrument for a contemporary use

In classical period Islam sakk (sukuk) – which is cognate with the European root ‘cheque’- meant any document representing a contract or conveyance of rights, obligations or monies done in conformity with the Shariah. Empirical evidence shows that sukuk were a product extensively used during medieval Islam for the transferring of financial obligations originating from trade and other commercial activities. Islam (Arabic:  ) is a monotheistic religion based upon the teachings of Muhammad, a 7th century Arab religious and political figure. ... World map showing the location of Europe. ... Example of a Canadian cheque. ... A contract is a legally binding exchange of promises or agreement between parties that the law will enforce. ... Conveyancing is the act of transferring the ownership of a property from one person to another. ... Sharia (Arabic شريعة also Sharia, Shariah or Syariah) is traditional Islamic law. ...

The essence of sukuk, in the modern Islamic perspective, lies in the concept of asset monetisation - the so called securitisation - that is achieved through the process of issuance of sukuk (taskeek). Its great potential is in transforming an asset’s future cash flow into present cash flow. Sukuk may be issued on existing as well as specific assets that may become available at a future date. Securitization is a financial technique that pools assets together and, in effect, turns them into a tradeable security. ... In finance, cash flow refers to the amounts of cash being received and spent by a business during a defined period of time, sometimes tied to a specific project. ...

Valued at the end of 2006 more than US$ 50bn the sukuk market is due for an exponential rise in 2007 with every issue likely to be oversubscribed 5 to 6 times amid a fast growing interest in the western countries.

The need for tangible assets

Shari’ah requires that financing should only be raised for trading in, or construction of, specific and identifiable assets. Trading in ‘indebtedness’ is prohibited and so the issuance of conventional bonds would not be compliant. Thus all Sukuk returns and cashflows will be linked to assets purchased or those generated from an asset once constructed and not simply be income that is interest based. For borrowers to raise compliant financing they will need to utilise assets in the structure (which could be equity in a 'tangible' company). It is worth noting that Equity financing is Shari’ah compliant and fits well with the risk/return precepts of Islam. Sharia (Arabic: transliteration: ) is the body of Islamic law. ... For other uses, see Debt (disambiguation). ... Look up bond in Wiktionary, the free dictionary. ... Interest is the rent paid to borrow money. ... The Court of Chancery, London, early 19th century This article is about the concept of equity in the jurisprudence of common law countries. ... Ownership equity, commonly known simply as equity, also risk or liable capital, is a financial term for the difference between a companys assets and liabilities -- that is, the value that accrues to the owners (sole proprietor, partners, or shareholders). ...

The problem with interest or ‘Riba’

As Shari’ah considers money to be a measuring tool for value and not an ‘asset’ in itself, it requires that one should not be able to receive income from money (or anything that has the genus of money) alone. This generation of money from money (simplistically interest) is ‘Riba’, and is forbidden. The implications for Islamic financial institutions is that the trading/selling of debts, receivables (for anything other than par), conventional loan lending and credit cards are not permissible. This article needs additional references or sources to facilitate its verification. ... In business and accounting an asset is anything owned which can produce future economic benefit, whether in possession or by right to take possession, by a person or a group acting together, e. ... Income, generally defined, is the money that is received as a result of the normal business activities of an individual or a business. ... For other uses of the word, please see Genus (disambiguation). ... Interest is the rent paid to borrow money. ... In Financial economics, a financial institution acts as an agent that provides financial services for its clients. ... Credit cards A credit card is a system of payment named after the small plastic card issued to users of the system. ...

The problem of uncertainty or ‘Gharar’

This principle is widely understood to mean uncertainty in the contractual terms and/or the uncertainty in the existence of an underlying asset in a contract and this causes issues for Islamic scholars when considering the application of derivatives. Shari’ah also incorporates the concept of ‘Maslahah’ or ‘Public benefit’, denoting that, if something is overwhelmingly in the public good, it may yet be transacted – and so hedging or mitigation of avoidable business risks, may fall into this category but there is still much discussion yet to come. Derivatives traders at the Chicago Board of Trade. ... It has been suggested that this article or section be merged into Hedge (finance). ...

Controversy

Sukuks are widely regarded as controversial due to their perceived purpose of evading the restrictions on Riba. Conservative scholars do not believe that this is effective, citing the fact that a Sukuk effectively requires payment for the time-value of money. This can be regarded as the fundamental test of interest. Sukuks offer investors fixed return on their investments which is also similar in appearance to interest in that the investor's return is not necessarily dependent on the risks of that particular venture. However the reality is that banks invest in assets and the return from these such as rent is evenly spread over the rental period and it is this stream of income which forms the basis of the "fixed" income stream and return to investors. Furthermore, given that there is an asset in the background, there is more security for the investor which makes sukuks increasingly appealing to global investors including both Muslims as well as Non-Muslims. The time value of money (TVM) is a way of calculating the value of a sum of money, at any time in the present or future. ... Interest is the rent paid to borrow money. ...

Summary

With its Arabic terminology and unusual prohibitions, Sukuk financing can be quite mystifying for the outsider. A good analogy is one of ethical or ‘Green’ investing. Here the universe of investable securities is limited by certain criteria based on moral and ethical considerations. Islamic Finance is also a subset of the global market and there is nothing that prevents the ‘conventional’ investor from participating in the Islamic market. A Green Investment Scheme (GIS) refers to a plan for achieving environmental benefits from trading ‘hot air’ under the Kyoto Protocol. ...

External link

• Global Islamic Finance Infocentre
• Managing Financial Risks of Sukuk Structures
• "Sukuk And Shari'ah: A Moodys Primer" covers all the above in far more detail. http://www.moodys.com/
• http://www.lmcbahrain.com/Global-table.asp
• http://sukkook.googlepages.com:
• Explanation of the mechanics behind a Sukuk
• Sukuk - an overview
• http://www.middleeastbusinessforum.com/sukuk
• http://www.assaif.org
• http://www.yasaar.org
• Information on Islamic Banking, Finance, Sukuk etc