Sukuk- Islamic Bond
GROUP MEMBERS
NAJAM ASLAM
HAMZA SAFDAR
SUBMITTED TO : SIR WASIQ ALI
CONTENTS
1.Definition and Meaning of Sukuk 2. Origin and History of Sukuk
3. Basic Structures and Shariah 4. Categories and Types of Sukuk
Conditions of Sukuk
5. Mechanism, Operations, and 6. Core Concepts in Sukuk
Documentation of Sukuk
Conclusion
Definition and Meaning of Sukuk
What are Sukuk?
• Sukuk are Shariah-compliant financial instruments that represent ownership in an asset, project,
business, or investment activity. Unlike conventional bonds, which are debt-based and interest-bearing,
Sukuk provide returns to investors through profit-sharing or rental income, not through interest (riba),
which is prohibited in Islam.
Key Points
• Based on Islamic contracts like Ijarah, Mudarabah, Musharakah, etc.
• Must be backed by tangible assets or projects.
• Promote ethical, risk-sharing finance.
Origin and History of Sukuk
Early Islamic Era Modern Development
• Sukuk originated from classical Islamic • First Sukuk issuance: 1990, Malaysia.
commercial practices such as sakk, used as
• Global expansion: 2001 onwards, with growth in
financial certificates or payment orders.
Bahrain, UAE, Saudi Arabia, and the UK.
• Today: Widely used in both Muslim and non-
Muslim countries for infrastructure and sovereign
financing.
Common Sukuk Structures
Structure Basis Returns to Investors
Ijarah Lease contract Rental payments
Mudarabah Profit-sharing venture Share of profits
Musharakah Joint partnership Profit/loss sharing
Murabaha Cost-plus sale Fixed profit margin
Istisna Construction contract Profit upon delivery
Wakalah Investment agency Agency fee and profit share
Shariah Conditions
Must avoid riba Must involve real Must have clearly Must be approved by
(interest), gharar assets or services. defined profit/loss or a Shariah
(excessive rental agreements. Supervisory Board.
uncertainty), and
haram activities.
Categories and Types of Sukuk
By Structure By Issuer
• Asset-backed Sukuk: Investors have legal • Sovereign Sukuk: Issued by governments.
ownership of underlying assets.
• Corporate Sukuk: Issued by corporations or
• Asset-based Sukuk: Ownership is beneficial, not financial institutions.
legal; more similar to conventional bonds in terms
of risk.
By Investor Type By Return Type
• Retail Sukuk: Target individual investors. • Fixed-return Sukuk: Predictable payments (e.g.,
Ijarah).
• Institutional Sukuk: Target banks, funds, and
large investors. • Variable-return Sukuk: Based on project
performance (e.g., Mudarabah).
Mechanism, Operations, and
Documentation of Sukuk
Issuance Process Key Features Required Documentation
• Originator (issuer) identifies • Tradable in secondary • Offering Circular/Prospectus
assets/projects to securitize. markets (if Shariah-compliant).
• Trust Deed
• SPV (Special Purpose • Usually have fixed tenures
• Shariah Compliance
Vehicle) is formed to isolate and periodic profit payments.
Certificate
risk.
• Backed by real assets or
• Asset Sale Agreements
• Sukuk certificates are sold to revenue streams.
investors. • Agency or Management
Agreements
• Returns are distributed as
rent or profit.
• Principal is returned at
maturity.
Core Concepts in Sukuk
Sukuk Issuance Sukuk Trading
• The creation and sale of Sukuk certificates to • Allowed if the underlying asset is tangible.
raise funds.
• If the Sukuk represent debt (e.g., Murabaha),
• Usually done via a SPV to comply with secondary trading is not allowed under Shariah.
accounting and Shariah rules.
Sukuk Redemption NAV (Net Asset Value)
• At maturity, the SPV or obligor repurchases the • Represents the value of the underlying asset(s).
asset or pays back investors.
• Used in pricing Sukuk in the market.
• Usually a pre-agreed buyback price.
Conclusion
Sukuk are innovative and ethical financial instruments that align with Islamic principles while providing
investment opportunities for a wide range of stakeholders. They promote:
Real asset-backed investments Risk-sharing over risk-transfer Financial inclusion in Islamic
and conventional markets
As global interest in sustainable and ethical finance grows, Sukuk are becoming a key pillar of modern capital
markets.
Thank You
