This publication is part of the journal ISRA International Journal of Islamic Finance (English Journal) (2011-2)
The Islamic finance market has developed and expanded with the increased global demand for ethical investment products and the introduction of a variety of financial instruments. Within the Islamic finance market, sukuk has proven to be an important financial instrument. In the literature sukuk has been categorised into four major types: asset-backed, asset-based, debt-based and project based. There is a need to understand the differences between these categories in order to ensure their Shari'ah-compliance. The research question dealt with in this paper is: Why does the categorisation of sukuk structures matter and what are the differences between the various categories of sukuk? This paper describes such differences through an analytical case study of the General Electric Capital Sukuk Ltd. (GE Capital Sukuk) which issued sukuk in November 2009. The AAOIFI Resolution (2008) is taken as the starting point of discussion on the mechanisms used in practice in sukuk structures. By pointing out the differences between asset-based and project-based sukuk and by defining the structural features of the GE Capital Sukuk, this paper illustrates that depending on the category in which sukuk is categorised, Islamic finance practitioners may have to consider different structural and legal mechanisms when issuing sukuk. By categorising sukuk, the industry is not merely giving the structures a name. Rather, the sukuk categories carry background information on the structures; the distinctions also clarify what legal and structural features are permissible for each structure.
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