Sukuk

Sukuk is an Islamic financial certificate, similar to Western financial bonds, which comply with Islamic religious law, commonly known as Sharia. Since the structure of the Western-backed Western interest-paying bond is not approved, the sukuk provider sells a certificate to a principal investor group and then uses the money to buy assets that the investor group has direct partial ownership interest on. The issuer must make a contractual commitment to return the bond at an equal price at a future date.

According to Securities Commission Malaysia (SC), sukuk refers to certificates of equal value which evidence undivided ownership or investment in the assets using Shariah principles and concepts endorsed by the Shariah Advisory Council Malaysia (SAC).

Accounting and Auditing Organization for Islamic Financial Institution (AAOIFI) described sukuk as securities of equal denomination representing individual ownership interests in a portfolio of eligible existing or future assets.

When investors buy sukuk and become sukuk holders, they receive a certificate from the issuer as proof of ownership and are entitled to a periodic return payment on the original amount invested. Once matured, the sukuk holder will get back the original amount of investment. Like most Islamic financial instruments there are different ways to achieve the same objective and the above is the only way to do it.