Compare and Contrast Sukuk (Islamic Bonds) with Conventional Bonds, Are they Compatible?

Abstract

The substance of finance or financial system is to find reasonable solutions for existing practical problems. Both of these financial vehicles, conventional bonds and Sukuk, attempt to mobilize the funds from surplus spending units to shortage spending units. There are fundamental risk/return differences between the two.In the conventional bond the underlying asset is money (debt) and in the Sukuk the underlying asset is indeed an asset.The two solutions are clearly not identical; the fundamental difference in their structure has great religious difference but virtually no financial differences. The conventional bonds are based on debt instrument while the Sukuk financing is based on equity method.

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