-
Essay / Islamic Banking and Finance - 1937
1.0 INTRODUCTION1.1 Background StudyIslamic banking and finance sector is a fast growing industry, where it is expanding and strengthening every year. According to Tahmoures (2013), there are more than 300 Islamic banks and financial organizations successfully running their businesses in Dubai, Los Angeles, London, Karachi, Jakarta, Cairo, Riyadh and many other cities around the world. The Financial Times estimates that the overall value of the industry exceeds $1,000 billion (Christophe, Rima, Laurent, Financial Times Special Report, 2010). Most of the expansion was contributed by the issuance of sukuk. According to Nazri (2012) in his workshop presentation on Islamic Banking and Regulatory Framework in Sri Lanka, sukuk are defined as certificates that represent the holder's proportionate ownership in an undivided portion of the underlying asset , where the holder assumes all rights and obligations related to these assets. Generally, sukuk are known as “Islamic bonds”, but this is the correct translation of the Arabic word Sukukis, “Islamic investment certificates” (Tahmoures, 2013). The term “Islamic bond” is emphasized because the only difference between sukuk and conventional bonds is that regulations consistent with the Islamic principle of financial trade apply to sukuk (Arif and Meysam, 2012). A conventional bond is a debt security issued by a company. or the government in order to obtain financial resources (Zhamal, 2010). The issuer is required to repay the bond holder a principal amount plus periodic interest or coupons at maturity. These conventional obligations are prohibited by Sharia law due to the interest-bearing loan transaction (Nazri, 2012). Unlike conventional bonds, sukuk are issued in accordance with the Sharia principle (Fadma and Rachid, 2013). Despite the differences between sukuk and conventional bonds, Balkish, Azwan, and Rabiatul (2012) stated that both financial instruments have a fixed term maturity and generate profits. (coupon) and negotiable at the normal yield price. However, sukuk must be linked and attached to a specific asset, service or project for a certain period of time.1.2 Problem StatementAccording to Dodik (nd), there are only 20 results in total from the Proquest search of sukuk . Today, with the growing popularity of Islamic finance and banking products worldwide, especially the issuance of sukuk, a large number of researches have been attempted to study the differences, applications and performance related to sukuk . In the previous research carried out by Fadma and Rachid (2013), they only evaluate the performance of the sukuk portfolio compared to the conventional bond portfolio, in the context of the Malaysian market. In their study, they attempt to determine whether there is a correlation between the return of the sukuk portfolio and that of bonds..