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  • Essay / Islamic Financial System: Sukuk or Islamic Bond

    There is no doubt that the Islamic finance and banking sectors have become a significant market that has played a significant role and importance in the global financial sector. In fact, the Islamic finance sector has presented and shown tremendous development and growth in terms of numbers (Hancock, 2013), as Islamic finance is maturing at a rate of 10 to 15 percent per year. , and there is no indication that such a trend is to decelerate in the future (Afshar, 2013). Furthermore, Islamic banking is known as a key contributor to the total assets of Islamic finance in terms of market share, which is approximately 80.3% (Mubasher.info, 2013). Considering this progressive trend of Islamic finance and banking sectors in the global financial system, one mechanism or facet of the Islamic financial system which seems of great importance and which is continuously adopted by the practitioners of Islamic finance is the Sukuk issuance. or the so-called Islamic bonds. In light of this, the research paper will provide a comprehensive report on the overall concept of Sukuk. In particular, the following sections of this research paper will elucidate and explain different aspects of Islamic finance as well as the practices and ideologies governing the concept of Sukuk. To begin, it will provide an overview of Islamic finance, including its most important features. This will follow an in-depth discussion on what a Sukuk or Islamic bonds actually is, providing a literature review covering its history, its two types, its seven key structures, the problems and risks of the Sukuk market, as well as as its measurement and disclosure mechanisms. Furthermore, the research paper also provides a review of the pricing and issuance mechanism...... middle of paper...... Zakat. Zakat is an essential instrument of wealth redistribution. In such a case, all banks and Islamic financial institutions should generate Zakat funds which will then be distributed to poor communities and households. They could do this by giving the fund directly to the beneficiaries or by giving it to any legal religious institution (Algaoud & Lewis, 2007, pp. 40-41). Finally, Islamic banks and financial institutions should establish a religious supervisory board to ensure that the practices and activities of these institutions are consistent with Islamic ethics. This particular sharia board is made up of Muslim jurists who serve as sharia auditors and advisors to these banks. They also assume responsibility for selecting new contracts, evaluating current contracts, and approving and supporting new product development..