Sukuk ijara, a form of Islamic bond, became the dominant bond structure in the $1 trillion Islamic finance industry in 2008, ratings agency Moody’s said in a recent report. Bumper oil earnings in the Gulf and rising demand for ethical investments have boosted the profile of the three-decade-old Islamic finance industry in recent years from a niche sector to one with growing international reach. But Shariah debt issuance shrank in the past year as the global credit crisis slashed asset values and battered investor confidence. Here are some questions and answers about Sukuk Ijara and the sector.
WHAT IS SUKUK?
Sukuk are Shariah-compliant bonds that do not pay interest. There are different structures, but in general, Sukuk are certificates of equal value representing undivided shares in ownership of tangible assets, usufruct and services. Islamic principle forbids charging interest (riba).
WHAT IS SUKUK IJARA?
Under this structure, the seller sells assets to the issuer who will issue Sukuk to fund the purchase. The Sukuk represents beneficial rights in the assets and Sukuk holders have an undivided proportionate beneficial interest in the assets.
WHY IS IJARA SO POPULAR?
Its simple structure and the wide range of assets that it can be structured with make it attractive. Both governments and corporates can issue Ijara. Ijara’s popularity has also surged after landmark 2008 ruling by a top Islamic finance body that some hugely popular profit-sharing structures were not Shariah compliant.
For more on this article, please click on the following link: Sukuk Ijara, the world’s top Islamic bond: The Peninsula
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