Proposal title: Conventional and Islamic Bonds: A Comparative Legal Study
Islamic bonds are known as the Sukuk; an Arabic word for the financial certificates issued. These types of bonds, which must comply with the Islamic commercial law, refer to certificates of equal value that signify the undivided ownership of assets in any given investment under the principles of Shariah and line with the Shariah Advisory Council concepts. The bonds are often structured in a way to generate returns to the investors while being issued as well as traded under the principles of Shariah. The Shariah principles under which the Islamic bonds operate prohibits “riba” or interest, thus making the financial instruments involved in such trades not permissible. Examples of Islamic bonds include the Salam Sukuk, Istina’a Sukuk, Murabahah Sukuk, and the Musharakah Sukuk.
On the other hand, commercial bonds are the general types of surety bond. These bonds are often given to the government agencies which may be local, state, or federal. The commercial bonds are always required for any given business or the individual to maintain the permits as well as the licenses given to them by the government. The commercial bonds are issued annually and are renewed every year. The renewal of these bonds may be aligned with the calendar year or done on the dates specified by the governing agencies issuing the bond.
Distinguishing the Islamic bonds and the commercial bonds involves looking into various perspectives. These perspectives include the key elements and structures of the bonds such as the asset ownership, investment criteria, issue price, effects of cost among others. In the asset ownership, the commercial model fails to give the investors the share of ownership in the projects, assets, joint venture, or the business in which they support. Thus, their debt obligation is often from issuer to the holder. However, the Sukuk model considers the investor and gives them partial ownership. The investment criteria of the commercial bonds are always open to any asset, business, project, or joint venture while that of Sukuk is purely based on the Shariah -compliant projects, ventures, businesses and assets. The issue price of commercial bonds is often based on the issuer’s creditworthiness while that of Sukuk is based on the market value of the project, venture, business, or asset.
This study will therefore conduct a comparative investigation into the underpinning principles of both types of financing instruments, in an attempt to identify the areas of convergence and divergence between a secular and a religious legal system.
