In the name of God the compassionate the merciful
In an increasingly interconnected world, pursuing financial innovation and ethical investing has led to the emergence of a unique financial instrument: Sukuk, also known as Islamic bonds. Rooted in the principles of Islamic finance, Sukuk offers a Shariah-compliant alternative to conventional bonds, bridging the gap between faith and finance.
With a global market valued at over $1 trillion, Sukuk has become a vital modern finance, attracting investors seeking sustainable and socially responsible opportunities. By adhering to Islamic principles, Sukuk promotes a financial system founded on fairness, transparency, and shared risk, fostering a more inclusive and equitable global economy.
As the demand for ethical investments grows, Sukuk is poised to reshape the financial landscape. Join us on a journey to explore the world of Sukuk, its benefits, and its potential to transform the future of finance.”
Sukuk complies with Islamic law (Sharia), which prohibits riba (interest) and speculative activities. This aligns with ethical and socially responsible investment principles, appealing to a broader range of investors seeking ethical investment opportunities.
Now let’s look at some reasons why sukuk has come to stay with investors worldwide
Diversification: Sukuk offers diversification benefits to traditional bond portfolios. They provide exposure to different sectors and geographical regions, especially in the Middle East and Southeast Asia, where Islamic finance is more prevalent.
Risk-Return Profile: Sukuk structures often involve underlying tangible assets, which can provide more security and stability compared to conventional bonds. This asset-backing can reduce the risk of default and offer a stable income stream.
Growing Market: The Sukuk market has been growing rapidly, with increasing issuance from sovereigns, financial institutions, and corporations. This growth reflects a rising demand and acceptance of sukuk as a mainstream financial instrument. In May 2024, a Saudi Arabian government-issued sukuk was over-subscribed four times- Islamic Finance News outlet.
Regulatory Support: Various governments and regulatory bodies have been supportive of Islamic finance, creating a favourable environment for Sukuk issuance. This includes tax incentives, regulatory frameworks, and market infrastructure development, enhancing the attractiveness of sukuk to investors.
AccessibilityLiquidity: The secondary sukuk market has improved, increasing its liquidity. Additionally, the establishment of Islamic finance hubs and exchanges has made sukuk more accessible to a global investor base.
Yield Opportunities: In some markets, Sukuk can offer competitive yields compared to conventional bonds, making them an attractive option for yield-seeking investors.
Economic Stability: Sukuk is often used to finance infrastructure and development projects, which can contribute to economic stability and growth in the issuing regions. This can be appealing to investors looking for stable, long-term investments.
Cultural and Religious Alignment: For Muslim investors, sukuk provides an opportunity to invest in a manner consistent with their religious beliefs. This cultural alignment can drive demand from a significant segment of the global population.
In a nutshell, the combination of ethical considerations, diversification benefits, risk-return advantages, market growth, regulatory support, and cultural alignment has made Sukuk an attractive investment option for a wide range of investors. And Allah knows best! “Praise be to Allah in whose favour good deeds are accomplished” (ibn Majah 3803)
The writer is an Islamic Banking and Finance patron and advocate in Ghana. He holds a BSc. in Islamic banking, economics, and finance from the International Open University a BA. in Political Science from the University of Ghana, and a Diploma in Education from the University of Winneba. We would want to collaborate and partner with any persons or organizations who are willing to explore this field in Ghana and beyond.
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