Sukuk vs Bonds: The Key Difference
A conventional bond is a loan. You lend money, receive interest, get your principal back. That's riba — prohibited.
A sukuk is different. Instead of lending money, sukuk investors own a proportional share of an underlying asset. The return they receive comes from the economic activity of that asset — rent, profits, or fees — not from interest on a loan.
How Sukuk Work in Practice
Example: A company wants to raise $500M. Instead of issuing a bond, it identifies a physical asset — say, a warehouse. It sells that warehouse to a special purpose vehicle (SPV), which then sells ownership certificates (sukuk) to investors. The company leases the warehouse back from the SPV and pays rent. Investors receive a share of the rent payments. At maturity, the company buys the warehouse back and sukuk investors receive their principal.
The investor earned rent (halal) not interest (haram). This is an ijara sukuk — the most common type.
Types of Sukuk
- Ijara Sukuk: Based on leasing. Most common type.
- Murabaha Sukuk: Based on cost-plus financing.
- Musharakah Sukuk: Based on partnership/equity ownership.
- Mudarabah Sukuk: Based on profit-sharing with a manager.
- Wakalah Sukuk: Based on an agency agreement.
Who Issues Sukuk?
Sovereigns: Malaysia, Saudi Arabia, Indonesia, UAE, Bahrain. Non-Muslim governments: UK (has issued Sterling sukuk), Germany, Luxembourg, Hong Kong. Corporations: Aramco, Emirates Airlines, HSBC Amanah, DP World.
How to Invest in Sukuk
Retail investors can access sukuk through: Wahed Invest's sukuk-inclusive portfolios, some Islamic bank accounts, specialized sukuk ETFs available on Middle Eastern exchanges, or through private placement (for high-net-worth investors). The sukuk market is growing, and Western retail access is improving.
Bottom Line
Sukuk is the Islamic fixed-income solution — the halal alternative to bonds. Understanding sukuk is essential for any serious Muslim investor seeking portfolio diversification.