sukuk

Sukuk are financial instruments, such as certificates, that have economic similarities to bonds but are structured so as to comply with Sharia. Corporate sukuk are sukuk issued by a body corporate, rather than a sovereign issuer.

The singular of sukuk is sakk, but sukuk is sometimes used colloquially as the singular and sukuks as the plural.

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Sharia

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+ sukuk

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Singular sakk.

Sharia-compliant certificates that represent an undivided ownership interest in an underlying tangible asset proportionate to the value of the holder's investment. The certificates entitle the holders to receive a pro rata share of the cash flows generated by and from the underlying tangible asset.

Sukuk are often compared to bonds, but there are fundamental differences:

• Sukuk are not debt obligations. Rather, they represent the sukuk holders' ownership interests in a particular pool of assets.

• In compliance with Sharia principles, sukuk holders are not entitled to receive interest. Instead, they receive a portion of the revenues generated by the assets they own. If no revenues are generated, the sukuk holders are not entitled to any returns.

Sukuk are generally structured as follows:

• The entity seeking capital (the originator) establishes a special purpose vehicle (SPV).

• The SPV issues certificates to investors in exchange for cash.

• The SPV purchases assets from the originator using the proceeds of the sukuk issuance which it holds in trust for the investors.

• The assets generate revenues (whether through a lease transaction (ijara) or another Sharia-compliant financing technique) that are used to return a profit to the investors in accordance with their ownership interests.

Related links

sukuk al-ijara

sukuk al-istisna'a

sukuk al-mudaraba

sukuk al-murabaha

sukuk al-musharaka

sukuk al-salam

sukuk al-wakala