All posts related to KL Conference on Islamic Wealth Management & Financial Planning 2018 - KLC-IWM-2018

Saturday, 21 May 2011

Overview on Sukuk

Sukuk (plural of sakk) or Islamic bonds is the most popular component in Islamic Finance among Muslim and non-Muslim consumers alike. 


Sukuk refers to trust certificates or participation securities that grant investors a share of the asset including the cash flow and risks that commensurate from such ownership. Similar to financial bonds in the conventional financial industry, sukuk are proof of ownership title and are utilised by financial institutions to raise cash. 



Both conventional bonds and sukuk are structured in tandem with physical assets that generate revenue. However, unlike a bond, sukuk can be designed from innovative applications of Islamic financial contracts. 



Leveraging on various Islamic principles, sukuk can be structured in several ways to offer the issuing entity greater financial flexibility and options to meet its funding requirements. Sukuk can be structured on any or a combination of 2 or more of these Islamic contracts:

  • Contracts of participation ('uqud ishtirak) such as musharakah and mudharabah; and
  • Contracts of exchanges ('uqud mu'awadhat) such as bai' bithaman ajil (BBA), murabahah, istisna' and ijarah


Globally, the sukuk market has experienced tremendous growth, averaging an annual growth of 40%. The sukuk market issuances declined in 2008 as a result of global market turmoil; however the long-term prospects for the sukuk market remain strong. Sukuk issued globally in 2008 amounted to USD14.9 billion.1 Malaysia leads the global sukuk market, represented by 61% of total global sukuk outstanding as at end 2008.2

The development of the sukuk market in Malaysia is supported by a comprehensive infrastructure including the reporting, trading and settlement system which has resulted in an active primary sukuk market with an average growth of 20% from 2002-2008.3

Without a doubt, Malaysia offers one of the most viable options for participation in this fast growing asset class. Coupled with Malaysia's more than 30 years of experience in Islamic finance and its overall comprehensive domestic sector, Malaysia offers several attractive value propositions for local and foreign sukuk issuers and investors.

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1Source: Standard & Poor's Ratings Direct, January 14, 2009
2Source: Financial Stability and Payment System Report 2008, Bank Negara Malaysia
3Source: Bank Negara Malaysia, Fully Automated System for Tendering/Issuance (FAST)



http://islamic-wealth-management.net

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