13/07/2023
AGS 101: What the Heck is Sukuk?
What is Sukuk?
Sukuk is a type of Islamic bond that complies with Sharia law. Sharia law prohibits the payment or receipt of interest, so sukuk are structured in a way that avoids this. Instead, sukuk are typically structured as ownership of assets, such as property or shares in a company. This means that sukuk holders share in the profits or losses of the underlying assets, rather than receiving interest payments.
Why are Sukuk Popular?
Sukuk are popular for a number of reasons. First, they offer a way for investors to participate in Islamic finance, which is a growing market. Second, sukuk can be used to finance a wide variety of projects, including infrastructure, real estate, and energy. Third, sukuk can offer attractive returns to investors.
How do Sukuk Work?
There are different types of sukuk, but they all share some common features. First, sukuk are typically issued by a special purpose vehicle (SPV). The SPV is created to own the underlying assets, and it issues sukuk to investors in exchange for funds. Second, sukuk holders receive payments from the SPV based on the profits or losses of the underlying assets. Third, sukuk holders typically have the right to redeem their sukuk at maturity, or to sell them on the secondary market.
What are the Risks of Sukuk?
Like any investment, sukuk have some risks. These risks include the risk of default by the SPV, the risk of changes in the value of the underlying assets, and the risk of illiquidity in the sukuk market.
What is the Future of Sukuk?
The sukuk market is growing rapidly, and it is expected to continue to grow in the future. This is due to a number of factors, including the growing popularity of Islamic finance, the increasing demand for Sharia-compliant investments, and the need for new sources of financing for infrastructure projects in the Middle East and North Africa.
Photo Credit: Google
Special Copy: Ritho Mwangi
