What is sukuk Al Istithmar?

These are certificates (sukuk) of equal value which are issued and sold to investors (as owners or bearers) who, by virtue thereof, have proportional claims over the financial rights underlying these certificates. …

What is the most popular sukuk contracts by issuance?

Sukuk al-ijara Some commentators regard the ijara sukuk as the classical sukuk structure and it has become the most commonly used structure by issuance volume since 2008. This structure’s popularity stems from its uncontested Shari’ah-compliance and investors’ familiarity with the sale and leaseback structure.

Is sukuk Capital guaranteed?

However, with sukuk, the initial investment isn’t guaranteed; the sukuk holder may or may not get back the entire principal (face value) amount. That’s because, unlike conventional bond holders, sukuk holders share the risk of the underlying asset.

What are the basis and principles of sukuk?

Like in a trust certificate, sukuk-holders get an undivided proportion of ownership in the underlying asset or the project-financed asset, and based on this ownership he is entitled to the cash flows from that underlying asset. To avoid gharar, all obligations and rights must be clearly specified/defined.

How is sukuk calculated?

1. In order to find sukuk price, we need to identify its present value. Therefore, the formula is as follows: Sukuk Price =
2. The above calculation happens if the discount rate is variable. If the discount rate is constant, the sukuk price is given as: = C ( 1 + R ) + C ( 1 + R ) 2 + …

What are the types of sukuk?

Sukuk can be divided into four several types based on the structure namely: asset-based Sukuk, asset-backed Sukuk , exchangeable Sukuk and hybrid Sukuk. Most of the outstanding Sukuk issuances are asset-based.

What are the common types of sukuk?

Types of Sukuk in Islamic Finance

• Back. Next. Sukuk al mudaraba (sukuk based on equity partnership)
• Back. Next. Sukuk al murabaha (cost plus or deferred payment sukuk)
• Back. Next. Sukuk al-salam (deferred delivery purchase sukuk)
• Back. Next. Sukuk al-salam (deferred delivery purchase sukuk)
• Back. Next.
• Back. Next.
• Back. Next.

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.

Are sukuk closer to equity or debt?

Asset-based sukuk are closer to debt because sukuk holders have recourse to the originator if there is a shortfall in payments. Thus, it is essential to note that sukuk are not always debt instruments, but sometimes equity depending on how they are structured.

How does a sukuk work?

Unlike a conventional bond (secured or unsecured), which represents the debt obligation of the issuer, a sukuk technically represents an interest in an underlying funding arrangement structured according to sharia, entitling the holder to a proportionate share of the returns generated by such arrangement and, at a …

Is sukuk a loan?

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 benefit of sukuk?

Sukuk can play an important part in the development of an Islamic market and banking system. The main advantage of sukuk is to comply with Sharia while boosting the standard of living in Islamic society and developing these societies’ economies.

How does Sukuk Al-Istithmar work as an investment?

Under a sukuk al-istithmar structure it is possible for ijara contracts (and the relevant underlying assets), murabaha receivables, and/or istisna receivables (each generated by the originator), as well as shares and/or sukuk certificates to be packaged together and sold as an investment.

Can a sukuk be sold under an Islamic contract?

It is possible for the rights under these Islamic contracts to be packaged together and ‘sold’ in order to form the underlying basis for issuing sukuk. However, care needs to be taken so as to ensure that this is not construed as trading in debt. The term “istithmar” is broadly understood to mean an “investment”.

Who is responsible for the servicing of a sukuk?

Trustee appoints Originator as its wakeel (or agent) with respect to the Sukuk Assets for a term that reflects the maturity of the sukuk. Originator is responsible for servicing the Sukuk Assets and, in particular, collection of the income (comprising principal and profit) therefrom.

Who is the Wakeel in respect of Sukuk assets?

Trustee appoints Originator as Wakeel (or agent) in respect of the servicing of the Sukuk Assets, such that: Originator retains control of the Sukuk Assets so that its principal business can continue without interruption; and through collection of income and the target level of Required Income, it generates a return for Trustee (and the Investors).