Islamic Finance: Malaysian Global sukuk - Essay Example

It differs from the traditional marketable securities in a way that it has a source of stable income and has a tangible asset base. Traditionally, sukuks are not supposed to be tradable because Islam prohibit to make money in the form of an interest (riba) in accordance with principle of the Shariah teachings quoted as; It is therefore prohibited for one to make money from money which is in the form of interest which is the debt instrument that banks use to make to money in the form of a loan from being practice in Islamic countries.

Strictly speaking, trading of debts and conventional loans are prohibited in countries that practice sukuk. Thus, sukuk differs from a traditional debt instrument or conventional bond which is a guarantee to settle a loan in a way that sukuk is supposed to constitute an ownership of a debt. Also, sukuk should have an asset base that has a stable income either in the form of a lease or ownership (Zin et al., 2011). In a Malaysian context, the treatment sukuk takes a more liberal way. It is because sukuk as a bond can assume the form of a debt certificate and its mode of finance has the characteristic “similar to those of a conventional bond, but is structured so as to be compliant with Shari’a law and can be sold to Islamic investors who are prohibited by Shari’a law from investing in securities” (Kettel nd).

Sukuk is still not similar to a bond because bond’s represent a debt of the issuer whereby the recipient collects interest on the debt. Rather, sukuk in Malaysia is used to service the need for “working capital or to re-finance existing debt, normally to be used in the transportation sector, especially in the shipping and aircraft sectors, real estate, construction and also in the petrochemical projects” (Majid et al 2.1). In this scheme, the payment is deferred whereby the amount of the price is agreed beforehand, including the time and method of its payment without requiring to state the