KUWAIT CITY, Dec 30: KFH Shariah Research Unit issued a Shariah report that compares among Sukuk, shares, and bonds, where it highlights similarities and differences from a Shariah perspective. It also explains that dealing with those instruments has increased the demand for them during the last period, which makes it pivotal to shed light on differences in a simplified manner that shows common investors the advantages of each instrument from a Shariah perspective; especially that a large segment of investors are interested in Islamic banking. The following is the report:

Islamic sukuk and shares:

When comparing the characteristics of Islamic sukuk to shares, we find that Islamic sukuk and shares in shareholding companies have the following in common:

* Shares and sukuk are the majority in the net assets of a company or project, and in order to perform proper trading of sukuk and shares, is that money and debts do not represent the majority of the project or company’s assets, because if they were, then the trading of sukuk and shares will comply with the Islamic regulations concerning debts and money.

* Owner of shares and sukuk is entitled to a share in the net profit of the company or project that is proportionate to the value of shares he holds in the company or the sukuk he owns in the project.
Sukuk and bonds market

* Issuance of new sukuk in 2010 reached $45 billion with a 41 percent growth rate that sukuk issuance in 2009. In 2010, sukuk issuance reached unprecedented levels, where issuance of new sukuk reached by end of November 2011 $80 billion with 77 percent increase than 2010. It is expected to reach $85 billion by end of 2011.

* It is worth noting that Q1 of 2011 witnessed highest share of sukuk issuance for this year worth $28.5 billion. Sovereign authorities possessed highest share of sukuk issuance for years 2010-2011, where sukuk issuance reached $30 billion in 2010 and $55 billion in 2011.

* Bonds’ growth rate reached 20 percent in 2010 and 30 percent in 2011.
Comparison between sukuk and shares:

* Owners of shares participate in managing the company through electing a board of members among themselves, while owners of sukuk do not directly take part in managing projects, and they do not elect a board. Islamic shariah stipulates that this form of investments depends on the fact that the investor neither takes part in investing decisions nor interferes in managing the project. However, the owner can only select an experienced and honest manager.

* Shares are considered to be permanent partnership in the company, even if another owner acquires the company. Sukuk is not necessarily a permanent partnership in the project, and the issuance of sukuk can finance a project that will be acquired by another party in certain time frames.
Comparison between sukuk and bonds:

* Sukuk represent a share in the ownership of the assets of a project or private investment business, while bonds represent debts to the company that issues them and is not related to assets.

* Sukuk are affected by the project, while bond holders are not affected by the results of the company’s business.

* Sukuk holders are entitled to profits and losses if the project loses, and is also entltiled only to the assets that his sukuk represent. However, bonds supported by assets of banknotes that are debts that should be paid by the issuer of the bonds.