Unlike bonds, sukuk are not technically debt instruments— although they are treated as such for regulatory purposes in some jurisdictions.
Sukuk typically represent an undivided beneficial ownership interest in certain tangible assets (save for certain receivables, such as zhimam or duyun), the usufruct of an asset or certain projects or investment activities. Although similar to conventional bonds, sukuk replace distributions of interest income with rent or profit which, in general terms, are derived from the assets underlying the sukuk. In essence, a holding of sukuk provides the investor with an ownership share in a particular asset or investment under a Shari'ah-permissible contract, and the investors receive the return from these assets.
Unlike bonds, sukuk are not technically debt instruments— although they are treated as such for regulatory purposes in some jurisdictions—and do not generate returns in the form of interest payments, although the rent or profit received by a sukuk investor will typically be equivalent to the interest a bond investor would receive if the relevant issuer had issued bonds rather than sukuk.
The majority of sukuk structures are asset based rather than asset backed. In an asset-based structure, investors rely on the credit strength of the obligor to fulfill its payment obligations in respect of the asset, whereas in an asset-backed structure, investors rely on recourse to the underlying assets because the profit return and return of capital are based on the asset itself.
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