Elena's Movie Review Madness

Reviews from my 11-year old mind!

Is Sukuk really the Islamic equivalent of a conventional bond? The answer is both yes and no. In strict terms, a loan is an obligation for the issuer/borrower to repay a certain amount of money at maturity, along with periodic coupon or interest payments. Islam does not allow any interest and therefore a sukuk is not a link in this sense. Sukuk, as described in AAOIFI`s Shariah Standard 17, “are equivalent certificates that are relevant to an underlying physical asset, usufruct or service or (owned) the asset of a specific investment project or activity.” In theory at least, the repayment of a sukuk is linked to the return generated by the asset, project or investment underlying the Sukuk certificate. While an investor takes a credit risk for the issuer as part of a conventional loan, his exposure under a sukuk is contrary to the performance of the underlying asset or activity represented by the Sukuk. However, in practice, the originator or entity providing the assets and receiving the funds from investors will have agreed to an obligation to repurchase the assets in the event of default at a value equal to the capital and the amount of the demarcated profits. In addition, the originator`s repayment obligation is covered by a third-party guarantee or liquidity facility, which returns the credit risk to the originator and/or guarantor. In this respect, the economic effect of a sukuk, even if it is structured differently, is similar to that of a traditional loan. Sukuk, commonly known as Islamic bonds, have become synonymous with Islamic finances in recent years. Following Kumpulan Guthrie Berhad`s first international Sukuk issue, worth $150 million in 2001, and a similar issue by the Malaysian government in 2002, Sukuk`s total outstanding assets have reached nearly $300 billion to date. However, when it comes to economic impact, the answer is probably yes. Sukuk, as described in AAOIFI Sharia Standard 17, “are equivalent certificates that are relevant to an underlying physical asset, usufruct or service or (ownership) the asset of a specific investment project or activity.” . .

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