Financial Products and Instruments
Financial Products and Instruments
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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