Sukuk, a key instrument in Islamic finance, represents a form of financial certificate that complies with Islamic law principles. These certificates are structured to generate returns to investors without infringing upon Islamic prohibitions on interest (riba) and uncertainty (gharar). Sukuk fundamentally represent proportionate beneficial ownership in underlying assets. They differ from conventional bonds, which represent a debt obligation. Sukuk holders receive a share of the returns generated by the underlying assets or business activities.
One of the key principles governing Sukuk issuance is the requirement for the underlying assets to be Sharia-compliant. This means that the assets backing Sukuk issuance must adhere to Islamic principles, ensuring that the investment is ethically sound for Muslim investors. Sukuk structures are diverse and can vary significantly based on the nature of the underlying assets and the preferences of the parties involved.
Sukuk issuance has gained notable traction globally, with various countries and entities utilizing this Islamic finance instrument to raise capital. In Australia, Sukuk has also emerged as a viable financing option, catering to the growing demand for Islamic finance products such as halal home finance. The Australian government and corporations have shown interest in Sukuk issuance as a means to diversify funding sources and tap into the Islamic finance market.