Understanding Sukuk

When it comes to money – be cautious!

Nervana

Sukuk Photo

(Photo, Grand Sheik of al-Azhar: Egypt Independent)

In an effort to develop Islamic alternatives to conventional investments, Muslim scholars have advocated new economical instruments, which fit with Sharia prohibition of usury and encouragement of shared risks. Islamic banking is growing, not just in Islamic countries, a number of multinational banks in the European continent, have opened branches or windows dedicated to the practice of Islamic banking.

Sukuk, or Islamic bonds, is one example of what such banking can offer; it is the Islamic answer to conventional bonds, an assets-based investment that can provide sovereign governments and corporations with a huge liquidity pool, or in a simpler terms, it is a kind of remortgage deal, but 3with a profit-sharing scheme, instead of a debt with a fixed interest rate.

The word “bond” is misleading as sukuk offers the investor partial ownership of the assets, and represents shares in the underlying…

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