Sukuk: Does it minimize risk?

Abstract

Recently, there has been a rapid growth of a booming multibillion-dollar market in Shariah-compliant sovereignand corporate Islamic structured financial instruments known as Sukuk. As shari’ah considers money to be ameasuring tool for value & not an asset to itself, it requires that one should not be able to receive income frommoney alone. The generation of money from money (interest) is riba, & is forbidden. Sukuk are asset-backed, stableincome, tradable and Shariah-compatible trust certificates. In addition, the globalization of financial markets andincreased convergence of Islamic finance and conventional markets, indirect interest rate effects and other financialrisks will necessitate the development of Islamic financial risk management techniques. This paper aims to analyzethe risk of the Sukuk compared to other financial instruments. Also, it aims to assess the impact of Sukuk on the costand risk structure of investment portfolios.