SUKUK Meaning and
Definition
-
Sukuk, also known as Islamic bonds, refer to financial instruments that comply with Islamic principles and are used for raising capital in the global Islamic finance market. Derived from the Arabic word "sakk," meaning "legal instrument" or "deed," sukuk offer investors a Sharia-compliant alternative to conventional bonds.
Unlike conventional bonds that represent debt, sukuk represent ownership in an underlying tangible asset, project, or business. These assets can range from real estate, infrastructure, or commodities to shares in companies. The issuance of sukuk involves the pooling of investors' funds, which are then used to purchase the underlying asset. Investors receive a proportionate share of the income generated by the asset or project, rather than predetermined interest payments.
Sukuk structures are designed to ensure compliance with Islamic principles, including the prohibition of interest (riba) and speculation (gharar), while promoting risk-sharing and asset-backed financing. The legal framework for sukuk often involves the creation of special purpose vehicles (SPVs), which hold the underlying assets on behalf of the investors.
Sukuk have gained significant popularity in Islamic finance due to their adherence to Sharia principles and the flexibility they offer in terms of structuring. They provide retail and institutional investors with access to an array of investment opportunities and enable governments, corporations, and infrastructure projects to raise funds in compliance with Islamic finance principles. As sukuk continue to grow globally, they serve as a vital tool for diversifying Islamic financial markets and attracting a wider range of investors.
Etymology of SUKUK
The word "sukuk" is derived from the Arabic root word "sakk", which means "legal instrument" or "written document". Sukuk is the plural form of "sakk", indicating multiple legal instruments or certificates. The term "sukuk" is commonly used to refer to Islamic bonds or investment certificates, which are structured based on the principles of Islamic finance.
