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Sukuk (Arabic: صكوك, plural of صك sakk, "legal instrument, deed, check") is the Arabic name for a financial certificate but can be seen as an Islamic equivalent of bond. Fiqh ( Arabic: فقه, fɪqəh is Islamic Jurisprudence. Fiqh is an expansion of the Sharia Islamic law—based directly on the An academic discipline or field of study is a branch of Knowledge which is taught or Researched at the college or university level This is a sub-article to Religious education, Academic discipline, and Islam. This is a sub-article of Fiqh and Law and economics. Islamic economics is Economics in accordance with Islamic law This is a sub-article of Islamic economical jurisprudence. Zakaat ( زكاة zækæːh zakaat or zakāh, has the implied Under Islamic law, jizya or jizyah (جزْية ʤɪzjæh Ottoman Turkish: cizye both derived from Pahlavi and ultimately from Aramaic In Sharia (Islamic Jurisprudence) nisab (نصاب is the amount which savings or capital or product must exceed in order for the Muslim owner to be obliged Khums ( خمس xʊms is the Arabic word for One Fifth (1/5 According to Shia Islamic legal terminology it means "one-fifth of certain items which a person This is a sub-article of Zakat, Infaq and Mustahabb. Sadaqah (plural sadaqat) ( صدقة, sˤɒdæqɒh is an A waqf ( plural, awqāf; vakıf wæqəf is an inalienable religious endowment in Islam, typically devoting a building or plot of land for Muslim Bayt al-Mal, AKA Bayt al-Mal Lil Muslimeen is a Hezbollah -controlled organization that performs financial services for the organization Islamic banking refers to a system of banking or banking activity that is consistent with Islamic law ( Sharia) principles and guided by Islamic economics Riba ( Arabic: ربا rɪbæː means Usury and is forbidden in Islamic economic jurisprudence. Murabaha (accurate transliteration murābaḥa, Arabic مرابحه is defined as a particular kind of sale compliant with Shariah, where the seller expressly mentions Takaful is an Islamic Insurance concept which is grounded in Islamic muamalat (banking transactions observing the rules and regulations of Islamic This is a sub-article to Islamic economical jurisprudence and Inheritance. This is a sub-article of Islamic economic jurisprudence and Muslim world. See also Modern Islamic philosophy, Islamism, Islamic terrorism Political aspects of Islam are derived from the Quran, the Sunna In Islamic law Marriage ("ʿurs" عرس is a legal bond and Social contract between a man and a woman as prompted by the Shari'a. This is a sub-article of Fiqh and Criminal law. Islamic criminal law (فقه العقوبات is Criminal law in accordance This is a sub-article of Islamic jurisprudence and Etiquette. This is a sub-article to Islamic jurisprudence and Islamic theology. This is a sub-article to Fiqh and Hygiene Hygiene is a prominent topic in Islam. Islamic military jurisprudence consists of the basic laws governing the conduct of the military aspects of Jihad (also known as "lesser Jihad " Arabic (ar الْعَرَبيّة (informally ar عَرَبيْ) in terms of the number of speakers is the largest living member of the Semitic language Arabic (ar الْعَرَبيّة (informally ar عَرَبيْ) in terms of the number of speakers is the largest living member of the Semitic language A certificate is an official Document affirming some fact For example a Birth certificate or Death certificate testifies to basic facts regarding This is a sub-article of Fiqh and Law and economics. Islamic economics is Economics in accordance with Islamic law In Finance, a bond is a Debt security, in which the authorized issuer owes the holders a debt and is obliged to repay the principal and Interest 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. For other meanings including people named 'Islam' see Islam (disambiguation. Sharia ( Arabic: ar شريعة) is the body of Islamic Religious law. Financial assets that comply with the Islamic law can be classified in accordance with their tradability and non-tradability in the secondary markets.

Conservative estimates by the Ten-Year Framework and Strategies suggest that over $700 billion 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. Sharia ( Arabic: ar شريعة) is the body of Islamic Religious law.

Sharia-compliant assets worldwide are worth an estimated $500 billion and have grown at more than 10 per cent per year over the past decade, placing Islamic finance in a global asset class all of its own. In the Gulf and Asia, Standard & Poor's estimates that 20 per cent of banking customers would now spontaneously choose an Islamic financial product over a conventional one with a similar risk-return profile.

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. A Green Investment Scheme (GIS refers to a plan for achieving environmental benefits from trading ‘hot air’ under the Kyoto Protocol 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.

Contents

History

In classical period Islam sakk (sukuk) – which is cognate with the European root "cheque" (which itself derives from Persian)- meant any document representing a contract or conveyance of rights, obligations or monies done in conformity with the Shariah. For other meanings including people named 'Islam' see Islam (disambiguation. A cheque (spelled check in American English) is a Negotiable instrument instructing a Financial institution to pay a specific amount of A contract is an exchange of promises between two or more parties to do or refrain from doing an act which is enforceable in a court of law In law conveyancing is the transfer of title of Property from one person to another or the granting of an Encumbrance such as a Mortgage or Sharia ( Arabic: ar شريعة) is the body of Islamic Religious law. 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.

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). Securitization is a Structured finance process which involves pooling and repackaging of Cash flow producing financial Assets Its great potential is in transforming an asset’s future cash flow into present cash flow. Cash flow (also called net cash flow) is the balance of the amounts of Cash being received and paid by a business during a defined period of time sometimes tied Sukuk may be issued on existing as well as specific assets that may become available at a future date.

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.

Principle

Shari’ah requires that financing should only be raised for trading in, or construction of, specific and identifiable assets. Sharia ( Arabic: ar شريعة) is the body of Islamic Religious law. Trading in indebtedness is prohibited and so the issuance of conventional bonds would not be compliant. Debt is that which is owed usually referencing Assets owed but the term can cover other obligations BOND (Building Object Network Databases started development in late 2000 as a Rapid application development tool for the GNOME Desktop by Treshna 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. Interest is a fee paid on borrowed capital Assets lent include Money, Shares, Consumer goods through Hire purchase, major assets For borrowers to raise compliant financing they will need to utilise assets in the structure (which could be equity in a tangible company). In accounting terms after all liabilities are paid ownership equity is the remaining interest in Assets If valuations placed on assets do not exceed liabilities Equity financing is Shari’ah compliant and fits well with the risk/return precepts of Islam. In accounting terms after all liabilities are paid ownership equity is the remaining interest in Assets If valuations placed on assets do not exceed liabilities

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. Money is anything that is generally accepted as Payment for Goods and services and repayment of Debts. In Business and Accounting, assets are everything owned by a person or company (all tangible and intangible property that can be converted into cash. Income, refers to consumption opportunity gained by an entity within a specified time frame which is generally expressed in monetary terms A genus (plural genera from Γένος Latin genus "descent family type gender" is a low-level Taxonomic This generation of money from money (simplistically interest) is "Riba", and is forbidden. Interest is a fee paid on borrowed capital Assets lent include Money, Shares, Consumer goods through Hire purchase, major assets The implications for Islamic financial institutions is that the trading and selling of debts, receivables (for anything other than par), conventional loan lending and credit cards are not permissible. In Financial economics, a financial institution acts as an agent that provides Financial services for its clients or members A credit card is part of a system of Payments named after the small Plastic card issued to users of the system

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. Derivatives are Financial instruments whose values depend on the value of other underlying financial instruments 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. In Finance, a hedge is an investment that is taken out specifically to reduce or cancel out the Risk in another investment

Controversy

Sukuk 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. The time value of money is based on the premise that an Investor prefers to receive a payment of a fixed amount of money today rather than an equal amount in the future This can be regarded as the fundamental test of interest. Interest is a fee paid on borrowed capital Assets lent include Money, Shares, Consumer goods through Hire purchase, major assets Sukuk 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, banks that issue sukuks are investing in assets--not currency. The return on such assets takes the form of rent, and is evenly spread over the rental period. The productivity of the asset forms the basis of the fixed income stream and the return on investment. Given that there is an asset underlying the value of the certificate, there is more security for the investors involved, accounting for the additional appeal of sukuks as a method of financing for investors.

References

  1. ^ http://www.ifsb.org/view.php?ch=4&pg=261&ac=26&fname=file&dbIndex=0&ex=1179827227&md=%D1Na%FC%E76%3D%2C%C4%EF.t%60%80%27%BF

External links

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