Sukuk is an Islamic Financial Product. It is an arabic plural word. Singular: Sakk-صك, Plural: Sukuk-صكوك The meaning of Sakk is 'legal instrument, deed, check'. It is commonly refers to the Islamic equivalent of bonds. Islam does not allow fixed income, interest bearing bonds. But sukuk is allowed in Islamic Shariah. Conventional bond is a promise to repay a loan.
According to IFSB , Sukuk is defined as certificates that represents the holder's proportionate ownership in an undivided part of the underlying assets where the holder assumes all rights and obligations to such assets.
Types of Sukuk:
Sukuk Murabaha: It is a partial ownership in a debt.
Sukuk Al Ijara: A partial ownership in asset.
Sukuk Al Istisna: A partial ownership in project.
Sukuk Al Musharaka: A partial ownership in business.
Sukuk Al Istithmar: A partial ownership in investment.
Sukuk al Mujarah, Mushakath, Mugarasa
Characterstics of Sukuk:
1. Sukuk holders are not only investors but also owner of the underlying assets.
2. It is an investment certificate that ensure ownership.
3. Sukuk has a definite time limit/maturity.
4. It is a shariah compliant , transferable and certificate which can convert into cash.
5. Sukuk obligator must have immovable properties on the balance sheet.
Parties of Sukuk:
1. Obligator
2. Special Purpose Vehicle (SPV)
3. Sukuk holder
Sukuk Operation procedure:
Step-1: SPV issues certificate, Sukuk holder pays price
Step-2:Obligator transfer title of Assets, SPV pay asset price
Step-3: Obligator and SPV have lease agreement, Obligator pays rent
Step-4: SPV pays periodic profit to Sukuk holder
Step-5: Obligator buy back assets at maturity from SPV
Step-6: SPV reimburse Sukuk holder at maturity
What is 'Window Dressing'?
Window Dressing: Window dressing is a strategy used by financial institutions near the quarter end or year end to improve the appearance of a portfolio to be presented to clients or shareholders. It is made to look the portfolio performance attractive. Generally the institution sells its stocks with large losses and purchase high flying stocks. Thus they show their better performance to the prospective investors. The practice is also known a dressing up a portfolio.
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