Quora Answer: How Do Sukuk, Islamic Bonds, Comply with Shari’ah, Given that Islam Forbids Paying Interest?
بِسۡمِ ٱللهِ ٱلرَّحۡمَـٰنِ ٱلرَّحِيمِ
The following is my answer to a Quora question: “How do sukuk, Islamic bonds, comply with shari’ah, given that Islam forbids paying interest?”
It is simplistic to believe that Islamic finance forbids the paying of interest since it equates any form of payment labelled as interest with riba’. But that is a different discussion.
Sukuk
are not real debt instruments, and thus, do not pay interest on lending. Bonds are debt instruments, and the interest
is upon the debt. Sukuk are not bonds
since it is priced based on an underlying asset, not a debt. The dividend is based on future cash flow. This means that the sukuk value may
vary over a period depending on the appreciation or depreciation of the underlying
asset. A bond’s value is not upon the
underlying asset, and the value does not change except through demand in the
secondary market.
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