Is sukuk a good investment?
Bonds and sukuk are issued to investors and may be used to raise capital for a firm. Both are considered to be safer investments than equities. Sukuk investors receive profit generated by the underlying asset on a periodic basis while bond investors receive periodic interest payments.
What is Return on sukuk?
In an asset-backed sukuk, the profit return and return of capital are ultimately based on the assets themselves. Unlike in an asset-based structure, investors can be expected to want to try to assess the value of the assets (and the related underlying transaction) themselves.
What is a sukuk market?
A sukuk is an Islamic financial certificate, similar to a bond in Western finance, that complies with Sharia – Islamic religious law.
How do you value sukuk?
- In order to find sukuk price, we need to identify its present value. Therefore, the formula is as follows: Sukuk Price =
- The above calculation happens if the discount rate is variable. If the discount rate is constant, the sukuk price is given as: = C ( 1 + R ) + C ( 1 + R ) 2 + …
What are the advantages of sukuk?
Sukuk can play an important part in the development of an Islamic market and banking system. The main advantage of sukuk is to comply with Sharia while boosting the standard of living in Islamic society and developing these societies’ economies.
What are the benefits of Sukuk?
Is Sukuk a debt?
Sukuk does not represent a debt obligation. Upon its issuance, the issuer sells certificates to investors. Then, the issuer uses the proceeds from the certificates to purchase the asset, and investors receive partial ownership of the asset. The investors are also entitled to part of the profits generated by the asset.
Is a sukuk an asset?
Sukuk is a financial instrument that shares characteristics with bond and stock which are issued to finance trade or the production of tangible assets6 .
Why do firms issue sukuk over bonds?
bonds and sukuk. According to Miller et al. (2007), sukuk are structured to ensure an equivalent return to a conventional bond, with the difference that the return on the sukuk is generated from an underlying asset, not from the obligation to pay interest.