1. What are sukuk, and how do they work?

Sharia-compliant, fixed-income capital markets instruments are proving an increasingly attractive investment, as Debashis Dey explains Generally known by their Arabic name, sukuk, and often incorrectly referred to as ‘Islamic bonds’, sharia-compliant, fixed-income capital markets instruments have steadily increased their share of global markets over the past decade. Initially developed exclusively in jurisdictions with majority Muslim populations, the global market for sukuk has seen considerable development over the past 10 years, with a number of high-profile corporate issuances and a number of sovereigns tapping the market. Sukuk are financial products whose terms and structures comply with sharia, with the intention of creating returns similar to those of conventional fixed-income instruments like bonds. Unlike a conventional bond (secured or unsecured), which represents the debt obligation of the issuer, a sukuk technically represents an interest in an underlying funding arrangement structured according to sharia, entitling the holder to a proportionate share of the returns generated by such arrangement and, at a defined future date, the return of the capital.

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