» Types of Sukuk

Types of Sukuk
In searching for finance alternatives instead non-compliant Sharia bond rulings, as-Sukuk occurred as a means of financing the Sharia compliant economic activities. In this article, I shall mention its definition; give a short summary about it, its types, forms of application, and a conclusion.     

Definition of sukuk
It is an investment tool that is based on dividing the modaraba capital into units of equal value registered by the names of its owners as each one of them owns unspecified shares of the capital and what it turns to be. This is the definition provided by the Islamic Fiqh Academy.
As-Sukuk Market has grown widely since it was first initiated in Malaysia in 2000, with a growth rate reaching 84% in 2008. 

Types of As-Sukuk and forms of application:
1- Sukuk As-Salam:
As-Salam is selling something that is not present in the time of contracting while the price is paid at conclusion. This type of Sukuk has been issued by the Bahrain government. The government sold aluminum that was not present for a price paid at issuing As-Sukuk. Then, As-Sukuk are kept till the date specified for delivery and in that date the government pays to the investor the value of the Sukuk he owns plus a profit resulting from selling the Aluminum to an independent third party in a price that is higher than the Salam price.
2-Sukuk Al-Ijara:
Countries have assets that are represented in public utilities and institutions. For instance, Bahrain issued Sukuk based on finance lease of some governmental assets (Central Warehouses).
3-Sukuk Al-Modaraba
Such Sukuks have an undefined financial profit, but it can be predicted based on the clues provided by the data derived from the companies’ financial reports about the market conditions over years.
The conditions and stipulations of these Sukuk shall be determined including its purposes and the profit percentage set for the issuing company for its effort in administrating the investment. The company guarantees the capital if it has violated the conditions according to which As-Sukuk are issued or in case of fraud or serious errors which lead to a big loss in the expected profit based on the previous results of the company unless a force majeure caused such a loss.  Such Sukuk are issued for a definite period of time; five years or more or less and the dividends are distributed with the issuance of the company’s financial annual report.

Statistics on Sukuk
Global Sukuk Outstanding
Last Updated : 29 Jul 2011
(In USD Billion)

 Note: Country is referring to where the sukuk is domiciled.
Offshore Centre: Cayman Islands, Jersey, British Virgin, and Bermuda.
Source: BNM analysis of data from Bloomberg.

Global Sukuk New Issuance
Last Updated : 01 Aug 2011
(In USD Billion)  Country             

 Note: Country is referring to where the sukuk is domiciled.
Source: BNM analysis of data from Bloomberg.

Conclusion
The facts proved that the Islamic Banking system is working properly as seen by the major financial institutions using its methods such as the Islamic Development Bank.
I have mentioned very little about As-Sukuk which will replace the ordinary bonds characterized by weaknesses. One of the most important advantages of As-Sukuk is that governments cannot over-borrow as they represent assets that already exist. This contradicts with the ordinary bonds that appeared clearly to be abused by governments.
Companies can issue As-Sukuk as a means of financing its activities and of enabling individuals to invest their money.
This is only a little about As-Sukuk and Islamic finance and we will continue discussing Islam and economy in the following newsletters.