Sukuk, also known as Islamic principle-complaint bond, can be an effective financial tool in the country to attract investment from the people interested in shariah-based financial activities, experts said at a programme on Saturday.
The observation came at the technical session of a two-day international workshop on 'Islamic Capital Market and Sukuk', jointly organised by Academy of Business Professionals (ABP) and Malaysia- based International Centre for Education in Islamic Finance (INCEIF) at a hotel in the city.
Speaking at the programme, INCEIF Associate Dean Professor Dr Mohamed Eskandar Shah Mohd. Rasid said investments compliant with Islamic principles or Shariah are gaining popularity, and Malaysia has become a global hub for issuance of Islamic bonds or Sukuk.
Elaborating the concept of Sukuk, he said the Sukuk issuer sells a certificate based on the underlying asset to a group of investors, who then rent it back to the issuer for a predetermined fee.
By doing so, the investors share the risk of investment together.
Clarifying difference between conventional bond and Sukuk, he said bond is a promise to repay a loan while Sukuk constitute partial ownership in a debt, asset, project, business or investment.
Mr Rasid said different types of Sukuk are based on different structures of Islamic contracts like Murabaha, Ijara, Istisna, Musharaka, Istithmar etc depending on the project the Sukuk is financing.
Sukuk securities tend to be bought as few securities enter the secondary market to be traded. Furthermore, only public Sukuk issues are able to enter this market, as they are listed on stock exchanges, he also mentioned.
According to the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), Sukuk is securities of equal denomination representing individual ownership interests in a portfolio of eligible existing or future assets.
Sukuk were developed as an alternative to conventional bonds which are not considered permissible by many Muslims as they pay interest and may finance businesses involved in non-Shariah-compliant activities.
Sukuk securities are structured to comply with Shariah by paying profit, not interest generally by involving a tangible asset in the investment.
Representatives from different banks and financial institutions participated in the workshop.
© 2024 - All Rights with The Financial Express
