Q1: What is Sukuk?
  • They are securities of equal nominal value, issued for a specified term, each representing a common share in the ownership of assets, benefits, rights, a specific project, its rights, or its cash flows, as specified in the public offering prospectus or information memorandum, as the case may be.
  • Sukuk are similar to stocks in that they both represent a common stake in the ownership of income-generating assets or a share in the capital of a profitable project.
  • The difference between sukuk and stocks is that sukuk are not perpetual, as is the case with stocks, but rather have a term during which they are liquidated in the manners stipulated in the prospectus (“Sukuk Redemption”).
  • Furthermore, upon liquidation, the stockholder receives his share of the company’s assets (after repaying its debts).
  • Sukuk holders, on the other hand, can recover their capital at the end of their term, regardless of the value of the sukuk issuer’s assets or their ability to repay their debts to others.
  • Sukuk, in most of their structures, are an off-balance sheet financing instrument on the part of the issuing company.
  • While stocks represent a common stake in the company’s capital, the sukuk holder is a financier of the issuing company.
  • A shareholder, on the other hand, is a partner in the issuing company. While the sukuk owner does not participate in the project’s management, the shareholder can participate in its management.
  • In terms of risk, sukuk are generally a low-risk security, while stocks are a high-risk security.
  • Sukuk are similar to bonds: both are issued at a nominal value. The difference between them is that the nominal value of sukuk is not guaranteed by the issuer, and therefore does not constitute a debt owed by the issuer, unlike bonds, which constitute a debt owed by the issuer.
  • A bond also has a fixed interest rate, while the interest paid on sukuk is not based on the nominal value, but rather a profit derived from the activity in which the sukuk holders’ funds were used, or the income generated from the assets they own under the sukuk.
  • They represent a common share in the ownership of assets, benefits, or services to be provided, and do not represent a debt owed by the issuer to the Sukuk holders.
  • They are issued in the name of their holders in denominations of equal value.
  • They are issued and traded in accordance with Sharia-compliant terms and conditions.
  • They are based on the principle of profit and loss sharing, and their profits are derived from the proceeds of their activities.