Islamic sukuk: structure, characteristics, and market development

Islamic Sukuk

This report is simply just a listing of ten different Islamic finance structures and a definition for each.

Terms Defined

Sukuk Al Ijara

This is broadly known to be "the transfer or the usufruct of an asset to another person in exchange for a rent claimed from him." In other words, this structure would be a lease and it is commonly used (Islamic Banker, 2015).

Sukuk Al Salam

This is the general principle that a person selling an item or property has to be in "constructive" possession of the property. A "usual" salam contract involves the purchase of assets by one party once there are agreed terms and delivery (Islamic Banker, 2015).

Sukuk Al Murabaha

This structure is not commonly used. However, it can serve a purpose when it is not possible to define a tangible asset for the purposes of quantifying the underlying investment. A seller sells goods to a customer with deferred payment arrangements (Islamic Banker, 2015).

Sukuk Al Musharaka

This term generally refers to a partnership due to the fact that the word for the arrangement is derived from shirkah. It is an agreement between one or more parties where all of the parties involved make some sort of capital contribution. Contributions can be cash or other assets (Islamic Banker, 2015).

Sukuk Al Mudaraba

When a sukuk is issued, the first step is to analyze the nature of the business and the relevant assets. If it is not possible to do so effectively, this arrangement is generally done as an alternative. Typically, one partner provides the capital while another provides the skills involved with the business (Islamic Banker, 2015).

Sukuk Al Istisna

Commonly referred to as an Islamic project bond. This structure has nto been widely used. It has certain structural drawbacks despite the fact that it is seemingly optimal for "greenfield" development (Islamic Banker, 2015).

Sukuk Al Wakala

This is the structure where one party is authorized to act on another's behalf. Basically the Islamic version of an employer agent (Islamic Banker, 2015).

Sukuk Al Istithmar