In addition, the authors investigate whether the choice of instrument depends on the tax status and government backing of the issuing firm. Second, we present the evidence showing that the performance of sukuk and bond are different. Sukuk and bonds are two kinds of financial instruments. The sukuk is secured by the full faith and credit of the federal government of nigeria. Introducing sukuk bonds currently, discussion about sukuk bonds and islamic finance are on the increase. The issuing of sukuk or islamic bondsas an instrument in islamic finance has grown in. The government of malta has also considered issuing this type of security. Rating methodology and evaluating the issuer of sukuk.
Other than dana gass sukuk, there are seven outstanding islamic bonds issued by u. In the united kingdom, sovereign debt can be issued in a sukuk format, a type of securitization that often resembles a bond. Sukuk, or islamic bonds, comprise one of the fastest growing segments in both the islamic and global financial industries. Indeed, this series of indices represent the whole malaysian bonds and sukuk market and allow to illustrate. Sukuk can resemble conventional bonds by some of its features, but it. They can be considered as an islamic version of conventional bonds. Sukuk is an alternative islamic finance instrument for conventional bonds. They conclude that \the stock market is neutral to announcements of conventional bond issues, but reacts negatively to the announcements of sukuk issues.
Our aim in this paper is to analyze the performance of sukuk portfolios and bond portfolios in malaysian bonds and sukuk market by using the series of indices tr bpam all bond index rather than individual sukuk or bonds. These islamic bonds are broadly referred to as sukuk. Sukuk are defined by the aaoifi accounting and auditing organization for islamic financial institutions as securities of equal denomination representing individual ownership interests in a. When you buy bonds, you are essentially loaning money to the issuer for a. They split the sample into whole 20002015, precrisis 20002007 and. Godlewski, turk, and weill2011 using malaysian sukuk data, empirically examine whether investors react di erently to the announcements of sukuk and conventional bond issues.
Green sukuk is a shariahcompliant bond, where 100% of the proceeds exclusive go to finance or refinance green projects that contribute to mitigating and adapting of climate change as well as preserving of biodiversity. The determinants of comovement dynamics between sukuk. International journal of bonds and derivatives ijbd. Mohd nizal haniff accounting research institute, universiti teknologi mara uitm shah alam, malaysia. Indonesia, the worlds largest exporter of coal, has become the first country in the world to sell a sovereign green sukuk bond. International journal of islamic economics and finance studies. Five important differences between sukuk and traditional. However,thetermislamicbonddoes not entirely cover the substance of sukuk. Sukuk adhere to an islamic view of finance, avoiding riba generating money from money, i.
Islamic bond in the financial markets heralds a new era which can provide much. There are five important differences between sukuk and traditional bonds. Its introduction and application what is sukuk sukuk in general may be understood as a shariah compliant bond. This study aims to comprehensively examine the stock market effects of announcements by firms to issue conventional bonds versus sukuk. Article pdf available in journal of comparative economics 4. Islamic business contracts provide the basis for islamic investment funds. Sukuk islamic bond or shariacompliant bond is an islamic financial certificate that represents a portion of ownership in a portfolio of eligible existing or future assets. Sukuk are traded overthecounter otc on the same registered electronic facilities as conventional debt securities, or as exchangetraded bonds and sukuk etbs on bursa malaysia securities bms. This paper investigates the impact of conventional bonds and sukuk announcement on shareholder wealth and their determinants using 79 sukuks and 87 conventional bonds over the period of 20042012 in six developed islamic financial market. We also investigate the elements affecting comovement paths and the determinants of sukuk corporate bond dynamic conditional correlation changes. Conventional bonds are interest bearing debt instruments, but sukuk. How sukuk islamic bonds differ from conventional bonds. Mottahedeh islamic finance is a popular subject beyond traditionally islamic countries.
An assetbacked bond which is structured in accordance with shariah and may be traded in the market. Sukuk, plural of sakk means legal instrument, deed or check. The journal encourages innovation in using theory and research methodology in exploring each area independently and collectively. A sukuk represents proportionate beneficial ownership in the underlying asset, which will be leased to the client to yield the return on the sukuk. Sukuk are islamic securities that are often translated as islamicbonds. By zhamal k nanaeva dissertation submitted in partial fulfillment of the degree of msc in finance and banking faculty of business. Because sukuk are assetbased securities not debt instruments they fit the bill. Islamic bonds sukuk emerged as an innovative capital market instrument over the last decade. Journal of legal, ethical and regulatory issues, volume 16, number 1, 20. A guide to structuring sukuk 1 the history and development of sukuk the development of modern shariah compliant financial products is relatively new, dating back to the early 1970s and the emergence of the first islamic banks. Islamic investors want to balance their equity portfolios with bond like products.
Cfa institute members are encouraged to selfdocument their continuing professional development activities in their online ce tracker. Introduction to sukuk introduction islamic banking transactions are based on islamic principles and jurisprudence sharia which are derived from a number of sources, including the primary source of the quran. Instead, the sukuk alijarah structure uses the leasing contract as the basis for the returns paid to investors, who are the beneficial. The debt management office dmo nigeria is a government agency established to centrally coordinate the management of nigerias debt.
The basic islamic principle is that money is not a commodity and therefore it is not possible to earn profit from its simple utilisation. Sukuk have recently had a significant amount of uk press coverage following david camerons speech on the opening day of the world islamic economic forum in london, 29 october 20. With tools, data, articles, videos and more, everything you need to know is at your fingertips. Sukuk is a certificate that represents ownership in underlying real assets. A sukuk is an islamic financial certificate, similar to a bond in western finance, that complies with sharia islamic religious law. Although sukuk is generally referred to as islamic bonds. Corporate sukuk in europe alternative financing for investment projects strategic research partners supported by. Evolution in the sukuk islamic bonds journal of islamic banking. In other words, sukuk represent ownership in a tangible asset, usufruct of an asset, service, project, business, or. Modern sukuk emerged to fill a gap in the global capital market.
The results suggest that there are some significant differences between islamic and conventional bond issuers choice determinants. Sukuk as a tool for infrastructural development in nigeria. Journal of islamic banking and finance, oct dec 2016 the. The issuing of sukuk or islamic bonds as an instrument in islamic finance has grown in. Pdf sukuk and bonds are two kinds of financial instruments that share the malaysian capital market. An introduction to islamic securities sukuk pegah zolfaghari. Academy of accounting and financial studies journal volume 22, special issue, 2018 islamic banking and finance 4 1532580622si175. Since interest bearing instruments are not permissible under islamic investment principles, the investment concept called sukuk was created as an alternative to traditional bonds.
Pros, cons and concerns the minister of power, works and housing, babatunde fashola, has said the federal government would spend the n100bn raised from the sukuk bond on roads. Pdf the impact of sukuk investment in developing uae economy. Cointegration of sukuk and bond yields evidence from. Understanding sukuk bonds islamic finance articles. Introduction, structuring and application of sukuk bonds an excellent introduction to sukuk bonds. Sukuk even with lowersimilar yields than other bonds. A comparative analysis of sukuk and conventional bonds. Meanwhile, many established players on the international capital markets are. Corporate sukuk in europe alternative financing for. Ijbd brings together research on the independency and interdependency of bonds and derivatives in one focus. However a few years ago a newspaper article led me to write a simple introduction to islamic mortgages.
This article provides an overview of the market for. Sukuk and bonds are classified as fixed income securities, and are issued largely for the same set of. Sukuk learn more about the issuing process of islamic bonds. The determinants of sukuk market development economic. Similar to stocks, they indicate a type of partner. Pdf sukuk is an alternative islamic finance instrument for conventional. They are issued and traded in compliance with the principles of shariah, which prohibit riba or interest.
Sukuk 3 is the arabic name for a financial certificate but can be seen as an islamic equivalent of bond4. A closer look at sukuk shows that sukuk have elements that might resemble both shares and bonds, depending on the. The sukuk qualify as bonds issued by the federal government of nigeria and as such, the rental income is exempt from taxes companies income, personal income, capital gains, and value added taxes. Sukuk islamic bonds are one of the islamic finance sectors that have experienced the fastest growth during the last decade. Think of sukuk as islamic bonds that are structured in a way to generate returns to investors. Home sections islamic finance islamic finance articles introducing sukuk bonds. Sukuk markets sukuk are seen as wellsuited for infrastructure financing because of their risksharing property could also help fill financing gaps. We find lower dynamic conditional correlations between sukuk and the us and european bond markets, but increase volatility linkages during shocks. This article examines the potentials for using islamic finance, particularly sukuk as a tool for capital raising and infrastructural development in nigeria and discusses the recent sukuk issuance by the osun state of nigeria under their n60 billion debt issuance programme. Sukuk are assetbased securities whereas bonds are debtbased. The research aims to bridge an important gap in these emerging markets.
Islamic securities sukuk are hybrid securities bearing features of stocks and bonds, altogether. Corporate choice between conventional bond and sukuk. European journal of accounting auditing and finance research. Sukuk, hybrid and perpetual sukuk is a case in point. Infrastructure for sukuk in malaysia in malaysia, the market infrastructure is the same for sukuk and conventional bonds and notes. Why everyones talking about dana gass sukuk bloomberg. An initiative for the enhancement and development of the islamic financial market by means of free access to a comprehensive sukuk database, latest market news as well as a database of qualified industry professionals and services firms.
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