The Theory and Practice of Profit Sharing Investment
Foundations of Islamic Finance series
Edited by Mohamed Ariff, Munawar Iqbal and Shamsher Mohamad
Chapter 1: Introduction to Sukuk Islamic Debt Securities Markets
Mohamed Ariff, Munawar Iqbal and Shamsher Mohamad 1.1 INTRODUCTION TO THE BOOK ON SUKUK SECURITIES This book is the outcome of a joint effort of a number of senior practising professionals as well as leading research scholars and educators in Islamic finance. The result is a reliable book on the subject of sukuk securities. Though this type of security is new to modern Islamic finance, it has its historical roots some centuries earlier as a novel instrument developed in the Turkish Empire based on earlier practices of government treasuries to raise money. Sukuk securities were first offered just about 20 years ago as part of a slew of new Islamic financial products to fund activities mostly over a finite horizon, since these are financing contracts priced not by using interest rates but by using returns on profit sharing-based contracts and asset-backing for the finance provided. This is noteworthy since Islamic banking, a financial intermediation paradigm designed to use profit sharing, has taken some 50 years to establish credibility as a new model that is not only viable, but that also has many additional benefits. Accordingly, it has spread across the world. One of the differences between Islamic and conventional finance is that the pricing of Islamic financial products is based on sharing a portion of profits/returns (or as a secured fee) only after profit is earned: the only exception is in a particular product where no reward is to be asked from the borrower, unless voluntarily given. Hence a fund...