Islamic Financial System: The Sukuk or Islamic Bond

It is in no doubt that the Islamic finance and banking sectors have grown into a significant market that played a great role and emphasis in the worldwide financial industry. As a matter of fact, the Islamic finance industry presented and showed a stellar development and growth in terms of figures (Hancock, 2013), as Islamic finance is maturing at 10 to 15 percent annually, and there is no indication that such inclination is to decelerate in the future (Afshar, 2013). Furthermore, Islamic banking is known as a key contributor in the Islamic finance total assets in terms of its market share, which is of about 80.3% (Mubasher.info, 2013). Having to consider such progressive trend of the Islamic Finance and banking sectors in the global finance system, one mechanism or facet of Islamic financial system that strikes the most to be of great importance and is continuously embraced by the Islamic financial practitioners is the issuance of Sukuk or the so-called Islamic bonds.

In light with this, the research paper will provide a comprehensive report on the overall concept of Sukuk. In particular, the following sections of this research paper will elucidate and explain different aspects of the Islamic finance as well as practices and ideologies governing the concept of Sukuk. To start, it will provide an overview of the Islamic finance including its most important features. It will follow a thorough discussion on what really is a Sukuk or Islamic bonds, through presenting review of literatures involving its history, its two types, its seven key structures, issues and risks in Sukuk market, and its measurement and disclosure mechanisms as well. Further, the research paper also provides review on the pricing and issuance mechanism...

... middle of paper ...

...Zakat. Zakat is a core instrument for redistribution of wealth. In such case, all Islamic banks and financial institutions should generate Zakat funds that will be further distributed to the poor communities and households. They could do this through giving the fund directly to the recipients or through handing it down to any legal religious institutions (Algaoud & Lewis, 2007, pp. 40-41). Lastly, Islamic banks and financial institutions should create a religious supervisory board in order to guarantee that the practices and activities of these institutions comply with the Islamic ethics. This particular Shari’a board is composed of Muslim jurists who serve as Shari’a auditors and advisers to these banks. They also carry out responsibilities of selecting new contracts as well as assessing current contracts and endorsing and supporting new product developments