Sukuk and Sukuk Markets: Introduction and Overview

This chapter describes the basic idea of sukuk and the issues related to the design and trading of sukuk. Sukuk are investment certificates that are tradable. From a conventional finance viewpoint, sukuk are hybrid instruments. Though sukuk are often referred to as Islamic bonds and have been compared to conventional bonds, they can be very different. While the typical bond is a fixed income security, sukuk, depending on their underlying contract, may have no fixed cash flows. Despite their newness, sukuk have become successful Islamic finance products. Global issuance of sukuk has increased several fold in the past few years. The ijarah and musharakah modes of sukuk have become the most popular. Like all Islamic finance products, sukuk need to fulfill several requirements in order to be Shariah-compliant. All funds raised through a sukuk issuance can only be used to fund halal activities. Income derived by sukuk holders must come from the sukuk's underlying assets, which must be a halal asset.