Diversification of Islamic Financial Insturments
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institutions are bound by the Shariah law to invest in them. Recently, high-profile issuances by
non-Muslim sovereigns have catapulted Sukuk into the big leagues of finance, earning global
visibility despite their very modest size in absolute terms.
Table 11. Underlying Contracts in Sukuk Contracts
Underlying
contract
Originator
(Mudarib)
Investor
(Sukuk holder)
Interim cash-
flows(to Sukuk
holders)
Cash-flow at
maturity
Ijarah (lease) Lessee of asset.
Pays lease
payments
Lessor Periodic Lease
Payments
At maturity from
sale of asset
Wakalah
(Principal-agent
relationship)
Agent
undertaking
investment in
underlying asset.
Principal Owner
of invested asset
Cash Flows
generated by
investment
Dependent on
type of invested
asset and/or
economic life of
project. No fixed
return.
Bay Bithaman
Ajil (sale based
on deferred
payments)
Purchaser of
underlying asset
Owner/seller of
underlying asset
Payment of
purchase price in
instalments
May and may
not have a final
balloon payment
Mudarabah Mudarib
(entrepreneur in
need of financing)
Rab-ul-Mal
(provide capital)
Periodic cash
flows from asset as
determined by
PSR
Unlikely. Final
payment could
simply be the
last periodic
payment given
tenor of
Mudarabah
contract.
Salam (Contract
for goods to be
delivered later–
forward)
Seller of
commodity/goods
which will be
delivered later
Purchaser of
commodity/good
s which will be
delivered later
Proceeds from sale
of goods received
– if there will be
delivering in the
interim
Usually the
largest cash
flows occur at
maturity when
delivery occurs.
Cash flow is
from sale
proceeds
Istisna Purchaser of asset
under
construction
Financier for
asset under
construction
Payments from
Mudarib if any
Profit from sale
of completed
asset
Murabahah Purchaser of asset Financier of
asset
Periodic payments
received from
Mudarib
representing price
of asset plus mark
up
Unlikely. Final
payment could
simply be the
last periodic
payment of
contract
Source: Created by Author