Report

On
Sukuk: An Islamic Financial
Instrument
Submitted to:
Mr. Md. Bokhtiar Hasan
Assistant Professor,
Dept. of Finance & Banking
Islamic University, Kushtia.

Prepared & Submitted by:

Group D

Date of Submission: 12- 01-16

Sukuk: An Islamic Financial Instrument

Name of group members

Roll No.

Name

1021031
1021032
1021033
1021034
1021035
1021036
1021037
1021038
1021039
1021040

MD Khairul Alam
Khondakar Habibur
Md. Monirul Islam
Belayet Hossen
Jamil Hossain
Shimul Sardar
Abu Sayed
Md. Shariful Islam
SM Nahidul Islam
Md. Tohidul Islam

Sukuk: An Islamic Financial Instrument

LETTER OF TRANSMITTAL
January 12, 2016
Mr. Md. Bokhtiar Hasan
Assistant professor,
Dept. of Finance & Banking,
Islamic University, Kushtia
Subject: Prayer for submitting the Report.

Dear Sir,
With due respect, we would like to inform you that we have completed
our report on Sukuk: An Islamic Financial Instrument. In order to
prepare the report, we have collected required information through
qualitative research and finally completed the report which is now
ready to submit. It was really enjoyable to work on the report as it has
provided us with an opportunity to know about realistic fact of Sukuk.
We have learned a lot about the given term after preparing this report
and got the chance to apply our theoretical knowledge learnt from the
university courses. It was a great pleasure for us to work on such a
challenging and practical topic.
We shall be highly glad if you kindly receive this report and provide
your valuable judgment. It would really be our immense pleasure if you
find this report useful and informative.

Sincerely yours,

Sukuk: An Islamic Financial Instrument

____________
Group-D

ACKNOWLEDGEMENT
The successful completion of this report on Sukuk: An Islamic
Financial Instrument has been possible for many helping hands.
At first, we would like to express our infinite gratuity towards almighty
Allah and our course teacher Mr. Md. Bokhtiar Hasan, Assistant
Professor, Dept. of Finance & Banking, Faculty of Business
Administration,
Islamic University, Kushtia to provide not only
extremely well arranged guidelines to complete our report work but
would also help us to confront problems in our future career.
We would like to express our heartiest appreciation to our all
classmates, who have been a constant support to us and have
patiently helped us throughout our report.

Sukuk: An Islamic Financial Instrument

ABSTRACT
In recent years, using a new instrument - called Sukuk- has been increasingly taken into
consideration in Islamic countries like Saudi Arabia, Pakistan, Kuwait, Malaysia,
Bahrain, Qatar, Bangladesh and even some European countries. Sukuk is a financial
instrument backed by physical assets and balance sheet; Sukuk bonds can be used as a
financing method for government agencies as well as private companies. Given the
importance of the issue, this paper first discusses the history, defines Sukuk and explains
the differences between Islamic bonds and conventional financial bonds. The following
section describes the types of Sukuk. The next sections show the impact of Sukuk in
economic development of different countries in the world as well as the prospects of
Sukuk in Bangladesh. Finally, conclusions and references are presented.

Sukuk: An Islamic Financial Instrument

Table of Contents
Title
Page No.
Introduction
Core of the report
Objectives of the report
Limitations of preparing the report
Methodologies
Literature review
Overview of the concept
History of sukuk bonds
Definition of sukuk
Different types of sukuk

Empirical Analysis
Impact of sukuk in economic development of different
countries
Prospects of sukuk in Bangladesh

Conclusion
Conclusion
References

7-15
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8-9
9-10
10-11
11
12-14
14-15
16-18
17-18
18
19-21
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21

Sukuk: An Islamic Financial Instrument

Sukuk: An Islamic Financial Instrument

Chapter
Introduction

CORE OF THE REPORT

The core of this research is focused on the academic research written on the Islamic sukuk
since the emergence of this concept in the Muslim world, by gathering some of the
outstanding papers written on the topic, looking at the problems raised, the solutions given,
and the recommendation suggested by the scholars for further development. The study then
assesses and evaluates these research works in order to achieve the objectives of the
evaluation.

OBJECTIVES OF THE REPORT

Primary objective of the research is to meet the requirement of the course. Secondary
objectives are as follows:

Sukuk: An Islamic Financial Instrument

To provide basic understanding of the concept of sukuk and its emergence.

To assess and evaluate the level of research achievement on the topic of sukuk.
To assess effects of the research works on the theoretical and practical applications of
the sukuk concept.
To explore some of the most significant research work in the area of sukuk.
To provide an academic work that could be used as framework for further research in
the area.
To provide useful feedback to the different groups of stakeholders that have direct or
indirect interest in this sukuk.

LIMITATION OF PREPARING THIS REPORT

While preparing the report, I have faced some limitations which are mentioned below:
a. The given time is not enough for such an extensive study. It is difficult to collect all
the required information in such a short period.
b. Most of the data and information used in this study are from the secondary sources.
c. Lack of available information
METHODOLOGIES

The term Methodology describes how the data needed in order to fulfill
the purpose is collected. It also discusses the formula and how to present
the formula in the report.
a. Quantitative research: Some research in the evaluation sample collected and used
the quantitative method by looking at the sukuk issuance size, number, geographical
distribution, international, local, and currencies of issues, expected volume of issues.
b. Qualitative research: On the other hand, the qualitative method is applied to collect
and analyze data in regards to the sukuk issuance acceptability, Shariah and legal
issues, types of contracts used, social effects of the issue.
I have used qualitative approach for our report because the majority of
data collection from the qualitative approach.

LITERATURE REVIEW
Sukuk is the Arabic term for Islamic securities. The literal meaning of sukuk is certificate.
According to the Accounting and Auditing Organization for Islamic Financial Institution
(AAOIFI), in its Shariah Standard 17(2), investment sukuk as certificates of equal value
representing undivided shares in ownership of tangible asset, usufructs and services, assets of
particular projects of special investment activity. The Islamic Financial Services Board
9

Sukuk: An Islamic Financial Instrument

(IFSB), in its Capital Adequacy Standard (IFSB 2), defined sukuk as Certificates that
represent the holders proportionate ownership in an undivided part of the underlying asset,
where the holder assumes all rights and obligations to such asset., while, in SC Guidelines
on Islamic Securities 2004, defined sukuk as a document of certificate which represents the
value of an asset. If we compare the three definitions above, SC has defined sukuk clearly
and encompasses the other two definitions. According to SC definition, sukuk is a certificate
that represents the value of an asset because sukuk as one of the Islamic financial instrument
that is a wholesale asset-based capital market security (Ali Said 2011). There are, however,
differences in the type of asset that can qualify under the global standard setting bodies
(AAOIFI & IFSB) definition and the SCs definition. The AAOIFI and IFSB do not
recognize financial asset (i.e., receivables) as assets that would qualify to form the
underlying assets of a tradable sukuk (ISRA 2011). Sukuk explained in hadith and Islamic
commercial literatures are limited, but a few references help to establish the root for sukuk
and the transaction. There was reference mentioning the term sukuk recorded in Al-Muwatta
by Imam Malik cited in ISRA (2011): Yahya related to me from Malik that he had heard
that receipts (sukuk) were given to people in the time Marwan ibn al-Hakam for the produce
of the market at al-Jar. People bought and sold the receipts (sukuk) among themselves before
they took delivery of the goods. Zayd Thabit and one of the Companions of the Messenger of
Allah, may Allah bless him and grant him peace, went to Marwan ibn al-Hakam and said,
Marwan! Do you make usury halal? He said, I seek refuge with Allah! What is that? He
said, These receipts (sukuk) which people buy and sell before they take delivery of the
goods. Marwan therefore sent a guard to follow them and to take them from peoples hands
and return them to their owners. There are another two primary references related to sukuk
cited by Adam and Thomas (2004): Abu Huraira asked Marwan if he permitted selling
sakaak. This sukuk were similar to a modern food stamp and were traded without the holders
of the sakaak taking possession of the underlying foodstuff. And; Sulayman bin Yasaar
reported that Abu Huraira said to Marwan, You have permitted the sale by riba. Marwan
replied. what did I do? You permitted the sale of sakaak (sukuk) and it was forbidden by
the Messenger of God to sell food before you possessed it. Then Marwan sermonized to the
people, forbidding this practice. Based on the references above, Islam gave many ways for
people to buy and sell goods but the transactions must be Shariah-compliant. Similar to the
transaction of sukuk, Islam also permitted the buying and selling asset-based capital but must
be based on the Shariah principles. According to Nathif and Thomas (2009), there are four
basic features of sukuk. Firstly, sukuk are certificates that represent undivided shares in
ownership of a particular project, issued for the purpose of establishing or financing a
business. The sukuk holder is entitled to all rights conferred by Shariah to an owner over
property. The second feature is the sukuk must not contain any guarantee of sukuk capital
according to AAOIFIs recommendations. The third feature is the sukuk must not contain
any guarantee of a fixed profit or profit based on a percentage of the capital. Murabaha
10

Sukuk: An Islamic Financial Instrument

Sukuk and Ijarah Sukuk have been excluded from this ruling as it is permissible to have a
contracted yield based on the agreed profit from the murabah sale or the agreed rental from
the leased asset. The last feature is that the sukuk must not contain any statement of
obligation from the issuers side that it will buy back sukuk for a nominal price. However the
sukuk may include a promise to buy back the sukuk at a market price, or a mutually agreed
price at maturity.

OVERVIEW OF THE CONCEPT

One of the main roles of the financial system is development of instruments and financial
institutions. Concurrent with the development of Islamic financial markets, a wide range of
financial instruments were designed based on Islamic rules in which the most common of
them is called Sukuk. Sukuk is a balance sheet financial instrument backed by physical
assets. Sukuk bonds can be used as a financing method for government agencies as well as
private companies. Sukuk market is a promising market that fully covers the current demand.
Although the market has been affected by the global mistrust, however, as expected, once the
global economy is on its own stand, then Sukuk issued would back to the previous track. A
part of the revival of the Sukuk market is dependent on Persian Gulf Cooperation Council
member countries to improve the financial system; so that papers published in the countries
are included 54% of all papers published in 2007. In addition, the industry needs to comply
with the standards of its own to show the industry is a tough industry and can be a part of the
global financial system.
Unfortunately, despite the rapid expansion of Sukuk in Islamic countries, the financial
instrument is not used in Iran. While there are now several countries in issuing Sukuk, the
issuing should be have quickly peace in company level. Over the past few years, a
considerable issued volume of Sukuk bonds have been related to government (not
companies).
HISTORY OF SUKUK BONDS

In the classical period of Islam, Sakk (sukuk)which is cognate with the European root
"cheque" from Persian '( )pronounced check'meant any document representing a
contract or conveyance of rights, obligations or monies done in conformity with the Shariah.
Sukuk were extensively used during medieval Islam for the transferring of financial
obligations originating from trade and other commercial activities.
The first attempt to overcome the liquidity problem faced by Islamic banks has been
done by the Central Bank of Malaysia in 1983 and so Malaysia's first Islamic bank was
started to work. The bank did not use the interest from Government securities or treasury
bills and instead issued government investment certificates which were bereft bonds. The
11

Sukuk: An Islamic Financial Instrument

certificates represent the Malaysian Islamic bank debt to government. There was no
predetermined interest rate for these bonds so the rate of return was announced by the
government. In 1992, the Malaysian government was issued $ 600 million Sukuk bonds in
international markets. National Mortgage Corporation of Malaysia provided a new program
in 2001 for the purchase of debt securities. The program and the establishment of Islamic
mutual funds were depended on Malaysian Sukuk Innovation Investments in the deployment
of new Islamic financial instrument. Malaysia is the world's largest Islamic bond founder so
that has become the world's largest Sukuk market by corporate Sukuk and has 62% of the
total global Sukuk share. For the first time in the area of the Persian Gulf states, the Bahrain
Monetary Institute issued government documents in accordance with Islamic law in 2001.
Also, in 2002, the Bahrain Islamic Liquidity Management Centre was established. The center
purchased and collected legitimate assets from governments, financial institutions and
corporations; and therefore Sukuk bonds were issued with the transaction capability based on
the value of assets base. In order to attract financial resources of Muslims, England America,
Germany and Japan have been attempted to issue Sukuk bonds. United Arabic Emirates
issued 5/3 billion Sukuk bonds for the second phase of Dubai Airport. Since the bonds sold
for various projects in the U.S. have been about 5/1 billion dollars, so the issue of 5/3 billion
Sukuk bonds for the second phase of Dubai Airport show the ability of Sukuk bonds in
financing.

DEFINITION OF SUKUK
Sukuk (), plural of Sakk ( )which means "legal instrument, deed, check", is
the Arabic name
for
financial certificates,
but
commonly
referred
to
as
"sharia compliant" bonds. It may be defined as a Shariah-compliant financial instrument that
is gaining wide acceptance not only in Muslim states, but also in largely non-Muslim
countries where it is seen as a very promising instrument to mobilize funds for economic
development by government as well as public-related institutions. This mode of financing
involves the securitization of a tangible asset so that investors could share in its profits and
risks. A certificate vesting ownership is issued for this purpose. This would entitle investors
to a portion of the income in proportion to their investment.
12

Sukuk: An Islamic Financial Instrument

Organization of Islamic Financial Institutions has defined Sukuk as: Certificates with
the same value which after accomplishment of the underwriting process; it represents the
nominal amount paid by the buyer to issuer and the holder will be the owner or a set of
assets, benefits of the asset or beneficiaries of an activity or a specific investment project
(securities& exchange organization).
Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) in
its standard 17, investment sukuk are certificates of equal value representing after closing
subscription, receipt of the value of the certificates and putting it to use as planned, thus it
represents a common shares and rights in the underlined assets or their usufructs and
services.
Islamic Financial Services Board (IFSB-2) defines: Certificates that represent the
holders proportionate ownership in an undivided part of the underlying asset, where the
holder assumes all rights and obligations to such asset.
Sukuk must comply to the underlying Shariah principles 1. Funds raised must be used for Shariah-compliant (halal) activities.
2. Fund raised may be used to finance needed tangible assets. Specificity of assets is
important, since Sukuk unlike conventional bonds cannot be used for general
financial needs of the issuer.
3. Income received by sukukholders (investors) must be derived from the cash flows
generated by the underlying.
4. Sukukholders have a right to the ownership of the underlying asset and its cash-flows.
5. Clear and transparent specification of rights and obligations of all parties to the
transaction, in particular the originator (customer) and sukukholders.
6. No fixity in returns.
At last we can say that sukuk is an Islamic bond structured in such a way as to generate
returns to investors without infringing Islamic law (that prohibits riba or interest) and which
represents undivided shares in the ownership of tangible assets relating to particular projects
or special investment activity.
Sukuk is different from conventional bonds in the following ways
Points of
distinctions
Asset ownership

Conventional Bonds

Sukuk

Bonds dont give the investor a share Sukuk give the investor partial
of ownership in the asset, project, ownership in the asset on which
business, or joint venture they the sukuk are based.
13

Sukuk: An Islamic Financial Instrument

Investment
criteria

Issue unit
Issue price

Investment
rewards and
risks

Effects of costs

support. Theyre a debt obligation

from the issuer to the bond holder.
Generally, bonds can be used to The asset on which sukuk are
finance any asset, project, business, based must be shariah-compliant.
or joint venture that complies with
local legislation.
Each bond represents a share of debt. Each sukuk represents a share of
the underlying asset.
The face value of a bond price is The face value of sukuk is based
based on the issuers credit on the market value of the
worthiness (including its rating).
underlying asset.
Bond holders receive regularly Sukuk holders receive a share of
scheduled (and often fixed rate) profits from the underlying asset
interest payments for the life of the (and accept a share of any loss
bond, and their principal is incurred).
guaranteed to be returned at the
bonds maturity date.
Bond holders generally arent Sukuk holders are affected by
affected by costs related to the asset, costs related to the underlying
project, business, or joint venture they asset. Higher costs may translate
support. The performance of the to lower investor profits and vice
underlying asset doesnt affect versa.
investor rewards.

However there are some similarities between Sukuk and conventional bond that are given
below:
Marketability: Sukuk are monetized real assets that are liquid, easily transferred and
traded in the financial markets
Rateability: Sukuk can be easily rated.
Enhanceability: Different Sukuk structures may allow for credit enhancements.
Versatility: The Variety of Sukuk Structures allow for structuring across legal and
fiscal domains, fixed and variable income options etc.

DIFFERENT TYPES OF SUKUK

Sukuk can be of many types depending upon the type of Islamic modes of financing and
trades used in its structuring.

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Sukuk: An Islamic Financial Instrument

1. Lease Sukuk: Lease Sukuk is kind of Sukuk investment which represents the
ownership of investment units which are equal to the value of the durable physical
assets; and are linked to a lease treaty as it is defined in law. Among the Islamic
financial products, the lease Sukuk is a unique product that has gained much
popularity among Muslim investors. On the other hand, issuers (governments and
corporations) have found that the lease Sukuk is an appropriate method for providing
benefits.
2. Mudaraba Sukuk: Mudaraba Sukuks are certificates that represent projects or
activities which are managed based on Mudaraba contract. Mudaraba Sukuk is useful
for public participation in large enterprise plans. The Mudaraba Sukuk is based on the
divided Mudaraba share through the issue of units of equal value which are registered
in the name of its owner. Mudaraba Sukuk documents indicate assets which are
obtained under Mudaraba investment. When someone buys Mudaraba Sukuk, all
property rights, such as the sale or transfer to heirs after death is justified.
3. Musharaka Sukuk: These Sukuk carry equal values and are issued by an
investment agent. They represent projects and activities, where the investment
agent shall be appointed as a mediator who manages the investment on behalf of
the Sukuk holders in consideration of a percentage out of the profits.
4. Ijara Sukuk: These are sukuk that represent ownership of equal shares in a rented
real estate or the usufruct of the real estate. These sukuk give their owners the right to
own the real estate, receive the rent and dispose of their sukuk in a manner that does
not affect the right of the lessee, i.e. they are tradable. The holders of such sukuk bear
all cost of maintenance of and damage to the real estate.
5. Murabaha sukuk: Murabaha sukuk are issued on the basis of murabaha sale for
short-term and medium-term financing. The term murabaha refers to sale of goods at
a price covering the purchase price plus a margin of profit agreed upon by both parties
concerned. The advantage of this mode of financing is that, if the required commodity
in the murabaha is too expensive for an individual or a banking institution to buy
from its own resources, it is possible in this mode to seek additional financiers.
According to shariah experts, the murabaha sukuk certificate represents a monetary
obligation from a third party that arises out of a murabaha transaction, which means
that it is a dayn, and it cannot be traded except at face value because any difference in
value would be tantamount to riba. Accordingly, murabaha-based sukuk can be sold
only in the primary market, which limits its scope because of the lack of liquidity. To
allow the trading of the murabaha sukuk in the secondary market, Islamic finance
experts have suggested that, if the security represents a mixed portfolio consisting of a
number of transactions, then this portfolio may be issued as negotiable certificates.
6. Salam Sukuk: Salam sukuk are certificates of equal value issued for the purpose of
mobilizing Salam capital so that the goods to be delivered on the basis of Salam come
to the ownership of the certificate holders. The issuer of the certificates is a seller of
the goods of Salam; the subscribers are the buyers of the goods, while the funds

15

Sukuk: An Islamic Financial Instrument

realized from subscription are the purchase price (Salam capital) of the goods. The
holders of Salam certificates are the owners of the Salam goods and are entitled to the
sale price of the certificates or the sale price of the Salam goods sold through a
parallel Salam, if any.
7. Istisna Sukuk: Istisna sukuk are certificates that carry equal value and are issued
with the aim of mobilising the funds required for producing products that are owned
by the certificate holders. The issuer of these certificates is the manufacturer
(supplier/seller), the subscribers are the buyers of the intended product, while the
funds realised from subscription are the cost of the product. The certificate holders
own the product and are entitled to the sale price of the certificates or the sale price of
the product sold on the basis of a parallel Istisna, if any. Istisna Sukuk is quite useful
for financing large infrastructure projects. The suitability of Istisna for financial
intermediation is based on the permissibility for the contractor in Istisna to enter into
a parallel Istisna contract with a subcontractor. Thus, a financial institution may
undertake the construction of a facility for a deferred price, and sub contract the
actual construction to a specialised firm. Shariah prohibits the sale of these debt
certificates to a third party at any price other than their face value. Clearly such
certificates cannot be traded in the secondary market.
8. Hybrid Sukuk: Considering the fact that Sukuk issuance and trading are important
means of investment and taking into account the various demands of investors, a more
diversified Sukuk hybrid or mixed asset Sukuk emerged in the market. In a hybrid
Sukuk, the underlying pool of assets can comprise of Istisna, Murabaha receivables as
well as Ijara. Having a portfolio of assets comprising of different classes allows for a
greater mobilization of funds. However, as Murabaha and Istisna contracts cannot be
traded on secondary markets as securitised instruments at least 51 percent of the pool
in a hybrid Sukuk must comprise of Sukuk tradable in the market such as an Ijara
Sukuk. Due to the fact the Murabaha and Istisna receivables are part of the pool, the
return on these certificates can only be a pre-determined fixed rate of return.

16

Sukuk: An Islamic Financial Instrument

Chapter - Empirical
analysis

IMPACT OF SUKUK IN ECONOMIC DEVELOPMENT OF DIFFERENT COUNTRIES

According to the statistics reported by Organisation of Economic Cooperation and

Development (OECD), the investments on various infrastructure projects including roads,
transport, telecommunication, electricity and water will require $71 trillion by 2030 across
the globe. Meanwhile, International Finance Corporation (IFC) estimates that $21 trillion of
those investments would be needed by the emerging markets. Islamic Bonds (Sukuk) have
been recognised as a viable financing method for infrastructure projects in developing
nations. It is worth mentioning that islamic finance is based on two major concepts; risk
sharing and socio economic development. Viewed from this perspective, sukuk issuances in
infrastructure projects requires the element of risk sharing, on one hand and contribute to the
social and economic development of developing countries, on the other.

17

Sukuk: An Islamic Financial Instrument

MALAYSIA
While dominating the global sukuk market, Malaysia has developed numerous innovative
sukuk structures. In 2012, Malaysian sukuk market achieved its highest growth rate as sukuk
issuances comprised the half of the total bonds in the country indicating $97.1 billion which
was 59.4 percent higher than the results of the previous year (Alim, 2014). Malaysia will
keep its leading position in the global sukuk market with a large number of issuances that
primarily focus on funding infrastructure development projects. As reported by Standard &
Poors (2013), the volume of infrastructure sukuk issuances in Malaysia reached $29.8
billion throughout the period from 2006 to 2012. The funds were invested on enhancing
numerous large scale projects including Kuala Lumpur International Airport, Southern Link,
Maju Expressway and Senai Dersu Expressway (Mardam-Bey, 2013). These infrastructure
projects were supported by the National Economic Transformation Program that is intended
to turn Malaysia into a high income nation by 2020.
SAUDI ARABIA
Saudi Arabias sukuk market has been benefiting from enhanced investor attitudes, increased
oil revenues and low rates of interest since the economic downturn in 2008. It is the largest
sukuk market in GCC region with the issuances reaching $15.2 billion in 2013. The main
contributor to sukuk issuances in Saudi Arabia is the infrastructure sector including power
and utilities, construction and transport (Aljazira Capital, 2014). Sovereign sukuk issuances
on infrastructure projects increased significantly during 2012 and 2013 since they became
one of the key drivers of economic growth in the kingdom (Saudi Gazette, 2013). The
government of Saudi Arabia has intended to expand the base of the national economy by
increasing activity in the capital markets. The General Investment Authoritys development
program that worth $500 billion is estimated to constitute nearly 50% of the entire
infrastructure and construction projects in the Middle East and North Africa (MENA) region
by 2020. It is important to note that the program has expanded the countrys infrastructure
and construction sectors by 177% during 2012 (Oxford Business Group, 2012).

UNITED ARAB EMIRATES (UAE)

NASDAQ Dubai had issue sukuk which has impact on the UAE economy. There have been a
wide range of purposes for sukuk structures and they are evolving rapidly based on the needs
and demands of issuers and investors. They could be simple sale and leaseback structures
like the $1 billion Dubai Department of Civil Aviation Sukuk which was issued in the year
2004, or it could be the $2.53 billion trust finance Sukuk structure issued by Aldar Properties
in March 2007 which demonstrated the flexibility of Islamic finance principles (NASDAQ
Dubai, 2014). Sukuk have been used to raise corporate finance for acquisitions or working
capital purposes. There are several examples which show that Sukuk has evolved into a
diversified, internationally acceptable instrument. Due to the development of sukuk market,
18

Sukuk: An Islamic Financial Instrument

the UAE economy has transformed to become more diversified and is more driven by private
sector. NASDAQ Dubai has used sukuk development to diversify the UAE economy in
creating a platform for the global financial capital market with the hope to make UAE a
center for Islamic economy. The presence of the deep and liquid sukuk market offers stability
to the financial system in this highly competitive environment. It is also proven that sukuk
can be implemented during the economic downturn. One of the examples for this was in
2005, the World Bank has issued a Sukuk or Islamic bond for the redevelopment of Acheh
after the tsunami of 2004 (Zeti Akhtar, 2010).

PROSPECTS OF SUKUK IN BANGLADESH

Bangladesh has got every potential for Sukuk market. The first Sukuk came into listing
through Islami Bank Bangladesh Limited (IBBL) in 2005 in the name of Mudaraba Perpetual
Bond to support its Tier-2 capital for BDT 3000 million. This is the highest yield generating
Sukuk of the world with average rate of return of 13.58 percent. In 2012, First Security
Islami Bank (FSIBL) also issued Sukuk for Taka 2500 million on Mudaraba principles
through private placement for a 5 years tenor. Sukuk may also be a good option for raising
fund for the large scale construction i.e. Padma Bridge or implementation of development
projects, for example, metro rail in Dhaka city. Recently, a team of experts have
visited Malaysia to make a feasibility study for large scale Sukuk issuance in Bangladesh.
We are expecting to see a substantial position of Sukuk issuance in Bangladesh in the coming
years.

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Sukuk: An Islamic Financial Instrument

Chapter Conclusion

CONCLUSION
Sukuk is considered as a reliable asset and such as guaranteed securities (Islamic) and
classified routinely is more powerful than classifiable bonds and investing by companies and
institutes and public. This financial instruments can be used to attract and gather the
dispersed society assets and also to take appropriate portfolio for provide most advantage
with Islamic beliefs for investors. In this study, the definition and types of Sukuk bonds was
presented and it was stated that the Sukuk investors, by their nature, have the right to have
the necessary information about their investment assets in other investments and other
additional investment. This helps to create a market discipline. Sukuk can be found
20

Sukuk: An Islamic Financial Instrument

competitive required structure for market; in that case, the developing economies that are
origin of Sukuk can be benefited greatly from it. So the government can have a proper
planning and preparations for this new financial instrument, have an important step to take
usury-free banking law. The uses of this new financial tool, can solve many problems related
to financing economic enterprises that all these cases, are the intrinsic functions of Islamic
government for achieving stable development.
From the perspective of Bangladesh, Sukuk may be a good option for raising fund for
the large scale of construction and implementation of development projects. We are
expecting to see a substantial position of Sukuk issuance in Bangladesh in the coming years.

REFERENCES
1. AAOIFI. (2004-2005). Shariah Standards for Financial Institutions.
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