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Islamic Finance in the Global Economy$
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Ibrahim Warde

Print publication date: 2000

Print ISBN-13: 9780748612161

Published to Edinburgh Scholarship Online: March 2012

DOI: 10.3366/edinburgh/9780748612161.001.0001

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Financial Products and Instruments

Financial Products and Instruments

(p.139) 7 Financial Products and Instruments
Islamic Finance in the Global Economy

Ibrahim Warde

Edinburgh University Press

Most of the products offered by conventional financial institutions have some Islamic counterpart. Importantly, however, the underlying contracts are often fundamentally different. Take, for instance, the case of sukuk or ‘Islamic bonds’. From an investor's point of view, the two are similar. As both offer a fixed return at periodic intervals, they can be traded on the secondary market and redeemed at a certain date. Nevertheless, the underlying financial transactions are not the same. The conventional bond is an interest-bearing debt, while the sakk or suku represents a share in an asset, and the periodic return usually represents a lease payment. Hence, while Islamic products were often created to resemble conventional ones, their implications are different. The contractual documentation is also different. In conventional leasing, the contract is usually short, whereas in Islamic documentation, transaction includes several contracts consistent with the Shariah principles. This chapter discusses Islamic financial products and instruments, starting with a discussion of the main building blocks of Islamic finance. The second part focuses on the new horizons in Islamic finance and the ways in which the building blocks can be combined to create new Islamic products.

Keywords:   sukuk, Islamic bonds, sakk, suku, contract, Islamic documentation, Shariah principles, financial products, Islamic finance

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