CHAPTER 5Accounting for Sukuk

A company can raise funds for its operations and expansion either by issuing shares or by raising debt capital. The latter consists of borrowing from banks or through the issuance of bonds. Bonds are an important part of the financial sector. However, the Sharia prohibition of charging and giving interest means that the issuing of bonds is not allowed in Islamic financial markets. Thus, for such markets, sukuk are issued instead. Sukuk aim to provide Sharia-compliant instruments for investment. These instruments are Sharia compliant primarily because there is no interest involved and it avoids excessive uncertainty (gharar). Given this, it is no surprise that the emerging economies of the Islamic world are turning to sukuk to manage their capital needs.

Sukuk provide an alternative to conventional fixed-income securities and are mainly used to finance large developmental and capital expenditures of big corporations. More important, sukuk are now used as an instrument to manage liquidity. The growth of the ...

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