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According to Faleel Jamaldeen, a prominent writer on Islamic finance, modern sukuk emerged to fill a gap in the global capital market. Islamic investors want to balance their equity portfolios with bond-like products. Because sukuk are asset-based securities — not debt instruments — they fit the bill. In other words, sukuk represent ownership in a tangible asset, usufruct of an asset, service, project, business, or joint venture.
Each sukuk has a face value (based on the value of the underlying asset), and the investor may pay that amount or (as with a conventional bond) buy it at a premium or discount.
Investors who purchase sukuk are rewarded with a share of the profits derived from the asset. They do not earn interest payments because doing so would violate sharia.
As with conventional bonds, sukuk are issued with specific maturity dates. When the maturity date arrives, the sukuk issuer buys them back (through an intermediary called a Special Purpose Vehicle).
Most importantly with sukuk, the initial investment is not guaranteed; the sukuk holder may or may not get back the entire principal or the face value amount. That is because, unlike conventional bondholders, sukuk holders share the risk of the underlying asset. If the project or business on which sukuk are issued does not perform as well as expected, the sukuk investor must bear a share of the loss.
In this session, we are going to learn how sukuks are different from conventional bonds, what the different kinds of sukuks in the markets are and what are the future prospects and challenges for this market