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Everything you need to know about Islamic Banking & Finance

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If you have always wondered what was the difference between Finance and Islamic Finance, what Sukuk was, here are your answers!

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DEFINITION

Everything you should know about Islamic Banking

Sukuk, also referred as Islamic bonds allow investors to generate returns without infringing The Islamic Law, Sharia.

Sukuk are structured as undivided shares, which means the investor has a common ownership with others. Created in the early 2000’s by Malaysia, Sukuks are having a great popularity not only in the Islamic World but also in more and more continents thanks to their low default risk. The future cash flow from underlying asset are converted into present cash flow to avoid generating interests that are prohibited by the Sharia (Riba).

 

There are different types of Sukuk:

  • Sukuk al ijarah: represents a partial ownership of an asset and is the most popular
  • Sukuk Murabaha: relates to the classic debt ownership of a bank except that it is a partial ownership of debt, in the Western world it can be compared to a Bond or credit swap
  • Sukuk al istisna: Project related bonds, the investors wait for his project investment to generate revenues and become profitable

 

 

After only one year of existence, Sukuk have raised over $19 Billion through the London stock exchange only and have a promising future.

b2ap3_thumbnail_Islamic-Finance-Growth-Trends.jpg

 

The IMF views Islamic finance assets as having reached $1.8 Trillion by end of 2014, a valuation that is consistent with statistics provided by industry bodies such as the IFSB

 

b2ap3_thumbnail_Global-Sukuk-Issuance.jpg

Global Sukuk Issuance hit a record in 2012 with the IMF suggesting the upward trend remains the direction of travel. The IMF stated whilst the Sukuk market has registered rapid growth in value and the issuer base has broadened, the markets for Sukuk are still neither deep nor liquid, and most issues of Sukuk are asset based and not asset backed. Issuance also takes place without a comprehensive strategy to develop the domestic market.

 

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Graphs:  islamicfinance.com

 

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