3.Introductin to Sukuk
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Transcript of 3.Introductin to Sukuk
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8/13/2019 3.Introductin to Sukuk
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ukukSukuk is an Arabic word and plural of a
word Sakk.
It signify legal instrument, deed or
Cheque.
It is an Arabic name for a financialcertificate which can be taken similar to
Bond.
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Bond
Islamic Jurisprudence
Sukuk
A financial product that develop inputmethods for capital resources.
It structure and engineered
Islamic financial products
bases of output
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Fixed and guaranteed
Income or interest bearing bondsare not permissible in Islam.
Sukuk are securitiesMeeting terms of Islamic Financial
law and investment principleswhich prohibits charging, paying
interest & involvement of Riba.
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Sukuk is a Financial Assets
Act in accordance with with
Islamic law
and
Classified
in accordance with their tradabilityand non-tradability in the
secondary markets
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Definition
Sukuk is non debt base instrument which isopposite to the bond and debenture and doesnot have means to guarantee the return, non
trade-able, non transferable, non-cashable priorto the maturity, non-collateralize, issued underequity participation in favor of original investor
of specific purpose, period, value and volumewith the condition of profit and lossparticipation and investor and seller identitydisclosed.
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Islamic Investment Principles (IIP)
IIP is the part ofShariah,Indirectly to be an
IslamicLaw. It is extensive to law as it cover
general body of spiritual and moral obligations
and duties in Islam towards economic, financial
and social affairs in the commerce & trade.
Sukuk is structure and issued under IIPwith thepurpose to structure the capital base of the
project &transaction under equity participation.
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A time-honored instrument
for a contemporary use
In post Islamic era Sakk which are nowcalled Sukuk were similar with
Conventional Cheque.
A document representing a contract,
Conveyance of rights, obligations orfinancial transaction in conformity
with the Shariah.
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Sukukhas a great potentiality in transformingassetsfuture Cash Flow into present cash flow.
Sukukis an input for the financial output
Practical evidence in archives indicate Sukuk asa product extensively used during medievalIslam for transferring financial obligations
Originating from trade and other commercial
activities.
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Sukuk may be issued on existingas well as specific assets that
may become available at afuture date.
Sukuk is the key to structurecapital as well cover the liquidity
requirement for permanent ortemporary requirement
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The need for tangible assetsShariah Rule
Financing should only be raised for purposespecific and identifiable which must have theEconomical and social viability.
Transaction under indebtedness are prohibitedas a result conventional bonds or debenture arenot permitted.
Sukuk returns and cash flows are linked totransaction workout Net Profit of transactionwithout any guarantee of return.
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User of funds need to utilize financingalong with contributing its equity in
transaction.Contribution of Equity is the share of
risk that user confirm in thetransaction .
Sukuk funds are Equity of Sukuk
owners that form into finance orfunds for venture
Shariah accept with risk and return
guideline of Islam.
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Rs.100,000
SUKUKPakistan Cotton Trading Ltd.
Subscription Amount Rs.100,000,000
Equity Participation 20:80Purpose Balancing , Modernizat ion & Replacement
Issued For Yousuf Ibnul Hasan
Issued 1stJune 2011to 31stDecember 2012
Non- Transferable, Non-Endorsable, Non-Cashable, Non Collateralize
Rs.100,000
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Problem with interest or Riba
Shariah Rule for MoneyMoneyis considers as measuring tool for
value.
Money is not a commodity.
Money cannot be bought and sold in similarquality.
Money to remain in circulation and cannot tobe stagnant or in holding
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Moneymust have support of equal valuewith authentication.
Moneyissuance on goodwill is an artificialvalue and such issuance is just a paper
printing.Moneyrequires to be utilized to receive
income or anything that has the type of
money alone.Moneyin exchange of money in similarquality is Interest a price of Money which
is Riba.
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Implication for Islamic financial institutionis trading and financing, receivables for
anything other than equality.Conventional loan, lending, borrowing or
debt base plastic currency are not
permissible.
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Problem of uncertaintyGarrar
Ambiguity in contractual terms oruncertainty in existence of an original
asset consider as unoriginal.
Shariah add in the concept of Publicbenefit, that, overwhelmingly in the
public good may yet be transacted
Hedging or mitigation of avoidablebusiness risks, may fall into this category
of Garrar but there is still much
discussion yet to come.
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(8) P- Formula
Financing is only be made available withclear understanding
of
Person, Purpose, Product, Project,Period, Performance, Process
=
Profit
And acceptance of Loss
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Declaration of Results
Financing is made available on 8 P formulaFinancing to be in clear confirmation:
Term and condition to pre-agreed
Duties and Responsibilities to define
Decision to be witness by active witnesses
Arbitration to be integral part of agreement
Agreement to be made by third person.
Monitor to be external body.
All matters to be in writing
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Sukuk for Financing
Sukukis the source of financing
Sukukis the source for structuring Capital
Sukuk is encouragement of saving conductSukukis a trading instrument without
excess to the face value
Sukukis specific and in general.
Sukukmust be in clear period and validity.
Sukukreturn are declared on maturity.
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Controversy
Sukuk are widely regarded as controversial due to
their visible purpose of evading limits on Riba
Traditional scholars do not believe that this iseffective, referring to the fact that Sukuk
requires payment for Time Value of Money
This consider as the basic application of
Interest
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Present Sukuk offerfixedandguaranteed rate of return on
investments, similar tointerestand itis risks freeof particular venture for
which Sukuk were issued.In reality banks invest in assets and return
from investment is spread over the
period. This flow of income is "fixed" andRate is pre declare without utilization of
investment amount which given to
investors.
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There is an asset in the background.
There is more security for the investor.
This security makes Sukuk increasinglyappealing to global investors
including Muslims and non-Muslims.
The soul of the Sukuk is not what is
been practice and the return is simplyan Interest which deviate theprincipal of participation.