SUKUK-structures: An analysis of risk-reward sharing and wealth circulation

Abstract

As Islamic business and finance flourishes, considerable progress is made in developing powerful and effective products that are practical as well as Sharia-compliant. Sukuk appears to be one of such products. Its issuance is a relatively new trend since it dawned on the global scene in 2002. The development of hybrid products is widespread in finance. The derivative securities' phenomenon and the process of disintermediation in the conventional (capitalist) financial system have a bearing on product development, worldwide. Sukuk too appears to be one such hybrid product. This paper attempts to discuss the sukuk dynamics, as a product of Islamic finance by examining its features and underlying structure, with the baseline of Sharia permissibility. By examining who the investors in sukuk should be, it attempts to re-align the sukuk structures with their purpose specified according to the AAOIFI Sharia standards. A sample from the current sukuk structures is tested by a basic two-question criteria; first, the risk- and reward-sharing, and second, wealth concentration or circulation. The analysis also includes the vital impact of risk-return sharing pattern on economic growth. © The Pakistan Development Review.