SUKUK

Sukuk are certificates or securities that represent financial rights deriving from basic trades and other commercial activities in the money and capital markets. The significant need for a shariah compliant product in the global capital market has encouraged sukuk to develop recognition as an alternative source of funding, particularly for government and corporate organizations. 

Islamic Capital Instruments	Sukuk
Definition	Certificates or securities that represent financial rights deriving from basic trades and other commercial activities in the money and capital markets.
Purpose	Encouraged sukuk to develop recognition as an alternative source of funding, particularly for government and corporate organizations.
Characteristics and Features	The underlying securities or business must be readily recognizable and shariah compliant. There should be no retreat or fixity.
Types	1)     Senior Unsecured Sukuk 2)     Subordinated Sukuk 3)     Secured Sukuk and Asset-Backed Sukuk
Shariah Contracts /Elements	- Bay’bi Thaman Ajil - Murabahah - Salam - Istisna' - Ijarah - Musharakah - Mudharabah - Wakalah
Example	Sukuks structured as trust certificates can only be used if the SVP is established in a trust-friendly off-shore jurisdiction. A sukuk can be established as an alternative civil-law structure if an SVP and trust certificates cannot be created.

A senior unsecured Sukuk gives Sukuk holders only the permission to decide demands against by the issuer and does not provide them any security interest or credit rights in the issuer's assets, including the assets underlying the Sukuk. Periodically, a few Sukuk issues have been structured as subordinated instruments from a legal and economic perspective. Sukuk holders in a subordinated Sukuk have legal recourse simply to the issuer, who is subordinated to all senior creditors, and no recourse to the underlying Sukuk assets. Some corporations have also issued secured Sukuk and asset-backed Sukuk in a few instances. Issuers typically are using these structures when they need off-balance-sheet finance or can't get such a strong credit rating without allowing Sukuk holders access to the underlying assets in the form.

Sukuk based on Bay'bi thaman ajil, Murabahah, Salam, Istisna', Ijarah, Musharakah, Mudharabah, and Wakalah contracts are offered. The economic objectives of the issuer, the accessibility of underlying assets, the amount of the debt that the company has, the issuer's credit rating, the legal framework in the country, and the taxation of a structure are all factors to consider when choosing a contract. Sukuks structured as trust certificates can only be used if the SVP is established in a trust-friendly off-shore jurisdiction. This isn't always possible. A sukuk can be established as an alternative civil-law structure if an SVP and trust certificates cannot be created. In this case, an asset-leasing firm is established in the nation of origin, which effectively purchases the asset and leases it back to the company in need of funds.