WHAT IS SUKUK

Sukuk (the plural of sakk) represent one of the most vibrant and significant components in
Islamic finance.Sukuk refers to certificates of equal value which evidence undivided ownership
or investment in the assets using Shariah principles and concepts endorsed by the SAC, but
shall not include any agreement for a financing/investment where the financier/investor and
customer/investee are signatories to the agreement and where the financing/investment of
money is in the ordinary course of business of the financier/investor, and any promissory note
issued under the terms of such an agreement. It is structured to comply with the Islamic
law and its investment principles, which prohibits the charging, or paying of interest. This is
generally done by involving a tangible asset in the investment, such as by giving partial
ownership of a property built by the investment company to the bond owner. The bond owner
is then able to collect his profit as a rent, which is allowed under Islamic law. In the classical
period of Islam, sukuk which is cognate with the European root "cheque" from Persian '()
pronounced check'meant any document representing a contract or conveyance of rights,
obligations or monies done in conformity with the Shariah. Empirical evidence shows that sukuk
were a product extensively used during medieval Islam for the transferring of financial
obligations originating from trade and other commercial activities.
CHARACTERISTICS OF ISLAMIC SUKUK
The characteristics that distinguish sukuk from other Islamic instruments of other investment
vehicles and which have contributed to its widespread prevalence . firstly it is based on the principle
of participation in profit and loss.The appropriate posts underlying principle of Sukuk issuance in
terms of the relationship between the participants is to participate in the profit and loss regardless of
the investment formula in place, which gives the owner a share of the profit, not the proportion of
predefined nominal value, and the share of bondholders of the profits from the project or activity
which is funded by a percentage determines when hiring, Fmakouha captured from participating in
the agreement as set out in the prospectus, and bear Grmha by owned by each of them, according
to the base of profits and losses sharing. Second is Documents issued on behalf of the owner of
categories of equal value. Issued instruments categories of equal value because they represent the
common shares in the assets of a particular project or activity of a special investment, so as to
facilitate the buying and trading of these instruments, and it looks like an instrument of Islamic stock
issued denominations equal and represents a common share in the net assets of the company to
contribute, as he meets with the conventional bonds, which are issued denominations equal. Third is
Issued and traded in accordance with the terms and conditions of Shariah. Allocate the proceeds of
instruments to invest in projects in accordance with the provisions of the Islamic Sharia, as it is
based on a contract basis and legitimacy according to Islamic modes of finance and speculation
Kalmharkat and other controls governing the issuance and circulation. Represents a common share
in the ownership of assets or benefits or services to be provided, and do not represent our source for
bondholders.
CONTROVERSY
Sukuk are widely regarded as controversial due to their perceived purpose of evading the
restrictions on Riba. Conservative scholars do not believe that this is effective, citing the fact that a
Sukuk effectively requires payment for the time-value of money. This can be regarded as the
fundamental test of interest. Sukuk offer investors fixed return on their investments which is also
similar in appearance to interest in that the investor's return is not necessarily dependent on the risks
of that particular venture. However, banks that issue Sukuk contend that Sukuk investors are
investing in assetsnot currency. The return on such assets takes the form of rent, and is evenly
spread over the rental period. The productivity of the asset forms the basis of the fixed income
stream and the return on investment. Given that there is an asset underlying the value of the
certificate, there may be, depending on the value of the asset, more security for the investors
involved, accounting for the additional appeal of Sukuk as a method of financing for investors.
Certain common structuring elements for Sukuk were criticised by Sheik Muhammad Taqi
Usmani President of the Shariah Council of the Accounting and Auditing Organisation for Islamic
Financial Institutions (AAOIFI) in a paper entitled "Sukuk and their Contemporary Applications"
released in November 2007.
[14]
Sheik Usmani identified the following three key structuring elements
that differentiate Sukuk from conventional bonds:
[15]

Sukuk must represent ownership shares in assets or commercial or industrial enterprises that
bring profits or revenues
Payments to Sukuk-holders should be the share of profits (after costs) of the assets or
enterprise
The value payable to the Sukuk-holder on maturity should be the current market value of the
assets or enterprise and not the principal originally invested.
Sheik Usmani stated that by complex mechanisms Sukuk had taken on the same characteristics as
conventional interest-bearing bonds, as they do not return to investors more than a fixed percentage
of the principal, based on interest rates, while guaranteeing the return of investors' principal at
maturity.
[16]
Sheik Usmani estimated that 85% of all Sukuk in issuance were not Shariah-compliant
due to the existence of guaranteed returns and/or repurchase obligations from the issuer.