- ISLAMIC BANKING AND FINANCE Research Paper Example | Topics and Well Written Essays - 2000 words

- ISLAMIC BANKING AND FINANCE - Research Paper Example Sukuk have gained popularity in Islamic finance as one of the best strategies to raise funds over the last few decades. Sukuk can be termed as legally acceptable certificates or securities issued in the Islamic economy with the intention to raise capital. These certificates serve the same purpose as bonds in the western economies. Bonds are not accepted in the Islamic finance structure since they carry an interest rate. Charging interest on securities is not acceptable under the Islamic sharia laws since it violates the principle of contractual certainty and mutual benefit between the financier and the debtor. According to the Islamic faith, wealth is God given, and mankind was created to guard and make good use of wealth and resources. In this regard, charging interest on bonds is against God’s will on equality and brotherhood. The Islamic sharia law is the foundation on which the Islamic finance is built. For any financial decision to be acceptable in the Islamic economies, it must fulfill all the requirements enshrined in the sharia law. Sukuk is an Arabic word used to refer to securities that are structured in accordance with the provisions of the Islamic law and intended to raise capital (Ariff, Iqbar, and Mohamed 13)Sukuk are used to stand in place of undivided shares in the ownership of real/visible assets concerning a specific investment undertaking. For Sukuk to be issued, there must be a clear record of the existing tangible assets on the balance sheet of the entity intending to raise capital. The process of issuing Sukuk starts by identifying the assets of the entity to assess their validity. The next step involves arrangement of an effective organizational structure that respects the Sharia law. Once an effective organizational structure has been established, the adjacent step involves the application of a suitable Sariah structure. Once that has been accomplished, a lead manager is