The main advantage of sukuk is to comply with Sharia while boosting the standard of living in Islamic society and developing these societies’ economies.
Sukuk can play an important part in the development of an Islamic market and banking system. The main advantage of sukuk is to comply with Sharia while boosting the standard of living in Islamic society and developing these societies’ economies. However, sukuk also bring several other important benefits.
Sukuk provide an ideal way of financing large projects for the public good that would otherwise not be possible. There are many economic activities or projects that are out of reach of individuals, companies, or, in the case of various developing Islamic economies, governments. In these cases, sukuk are perfect for financing these projects without falling into interest-based debt. This makes sukuk an important avenue for redistribution of wealth and achievement of social justice. The use of sukuk to fund large projects means that investors in sukuk are incentivized to help economies develop by creating and producing rather than by consuming or manipulating others. Islamic finance is based on principles of fairness and justice which are achieved by avoiding Riba.
Investors on the secondary market that are looking for investments that can be liquidated easily will find that sukuk are ideal. Thanks to the secondary market for Islamic securities, investors can sell their securities and obtain the cost of their certificates. If the projects that back their sukuk certificates have generated profits, this results in a quick return in investment. This means that Islamic financial instruments are well suited for fund management. Banks or institutes can use part of their funds to purchase Islamic securities and then sell them on the secondary market when liquid assets are needed.
Sukuk are well suited for smart management of risk. Uncertainty is a big part of investment. Islamic securities can be issued with varying degrees of risk and yield, allowing investors to choose a portfolio best suited for their risk management profiles. It is important to note that risk in sukuk is more difficult to manipulate artificially than is the case in other types of securities. This is because the value and risk of sukuk is always related to real assets with provable, tangible value, rather than on artificial manipulation of debt and credit ratings.
Originally published on www.sukuk.com