Difference Between Sukuk And Bond Pdf

difference between sukuk and bond pdf

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Comparison between Sukuk and Conventional Bonds: Value at Risk Approach

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To learn more, view our Privacy Policy. Log In Sign Up. Download Free PDF. Download PDF. A short summary of this paper. Sukuk: is the Arabic name for financial certificates, but commonly refers to the Islamic equivalent of bonds. Since fixed income, interest bearing bonds are not permissible in Islam, Sukuk securities are structured to comply with the Islamic law and its investment principles, which prohibits the charging, or paying of interest.

Financial assets that comply with the Islamic law can be classified in accordance with their tradability and non-tradability in the secondary markets.

What is a conventional bond? Bonds are a type of debt security. They are effectively an IOU between a borrower the issuer of the bond and a lender the investor who purchases the bond -just as a bank deposit is effectively an IOU between the bank as borrower and the depositor as lender. When a government, corporation or other entity needs to raise money, they can borrow money from investors by issuing bonds to them.

Investors who purchase a bond from an issuer are essentially lending money to the issuer for a fixed period of time. In return, investors receive an instrument the bond promising that they will receive interest payments at certain intervals and also have their principal returned on a stated future date Distinguishing Sukuk from Conventional Bonds Conventional Bonds SukukAsset ownership Bonds don't give the investor a share of ownership in the asset, project, business, or joint venture they support.

They're a debt obligation Sukuk give the investor partial ownership in the asset on which the sukuk are based. Investment criteriaGenerally, bonds can be used to finance any asset, project, business, or joint venture that complies with local legislation. The asset on which sukuk are based must be sharia-compliant. Issue unitEach bond represents a share of debt.

Each sukuk represents a share of the underlying asset. Issue priceThe face value of a bond price is based on the issuer's credit worthiness including its rating.

The face value of sukuk is based on the market value of the underlying asset. Investment rewards and risksBond holders receive regularly scheduled and often fixed rate interest payments for the life of the bond, and their principal is guaranteed to be returned at the bond's maturity date. Sukuk holders receive a share of profits from the underlying asset and accept a share of any loss incurred. Effects of costsBond holders generally aren't affected by costs related to the asset, project, business, or joint venture they support.

The performance of the underlying asset doesn't affect investor rewards. Sukuk holders are affected by costs related to the underlying asset. Higher costs may translate to lower investor profits and vice versa. Related Papers. Contractual structures and payoff patterns of Sukuk securities. By Meysam Safari. The Economics of Islamic Finance and Securitization.

By Abdullahi hassan. By Paolo Biancone. Rating methodology and evaluating the issuer of sukuk. By Slim Mseddi and Nader Naifar. Islamic Economics and Finance. Download pdf. Remember me on this computer. Enter the email address you signed up with and we'll email you a reset link.

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Comparison between Sukuk and Conventional Bonds: Value at Risk Approach

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Sukuk are defined by the AAOIFI Accounting and Auditing Organization for Islamic Financial Institutions as "securities of equal denomination representing individual ownership interests in a portfolio of eligible existing or future assets. Sukuk were developed as an alternative to conventional bonds which are not considered permissible by many Muslims as they pay interest and may finance businesses involved in non-Sharia-compliant activities gambling, alcohol, pork, etc. Sukuk securities are structured to comply with Sharia by paying profit, not interest—generally by involving a tangible asset in the investment. For example, Sukuk securities may have partial ownership of a property built by the investment company and held in a Special Purpose Vehicle , so that sukuk holders can collect the property's profit as rent , which is allowed under Islamic law. Because they represent ownership of real assets and at least in theory do not guarantee repayment of initial investment, sukuk resemble equity instruments, [3] but like a bond and unlike equity regular payments cease upon their expiration. However, most sukuk are "asset-based" rather than "asset-backed"—their assets are not truly owned by their Special Purpose Vehicle , and their holders have recourse to the originator if there is a shortfall in payments.


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Hebah Shafeq Shalhoob. Farooq Ahmad Supervisor. Ahmed Beloucif Supervisor.

Although a common starting point for explaining sukuk is to use bonds as a comparison point, it is important to understand that there are certain fundamental differences. Sukuk adhere to an Islamic view of finance, avoiding Riba generating money from money, i. The assets that back sukuk are compliant with Shariah. Assets backing bonds may include products or services that are against Islam.

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DIFFERENCE BETWEEN ISLAMIC BOND (SUKUK) AND CONVENTIONAL BOND

Concept of Sukuk and Its Development Process 1.

DIFFERENCE BETWEEN ISLAMIC BOND (SUKUK) AND CONVENTIONAL BOND

Although a common starting point for explaining sukuk is to use bonds as a comparison point, it is important to understand that there are certain fundamental differences. Sukuk adhere to an Islamic view of finance, avoiding Riba generating money from money, i. The assets that back sukuk are compliant with Shariah. Assets backing bonds may include products or services that are against Islam. Sukuk are priced according to the value of the assets backing them. Bond pricing is based on credit rating. Sukuk can increase in value when the assets increase in value.

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PDF | On account of the prohibition of interest (riba), Islamic finance is generally The significance of the differences between sukuk and.


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