Islamic Securitization and Structured Finance - Islamic Finance News

    15 July 2010

    As global economies are gradually recovering, notwithstanding the current disrupti ons in Europe, we are beginning to see a resurgence of Islamic securitized transactions and other structured financing. For example, Standard Chartered plans to arrange more than US$4 billion of Sukuk in 2010, and GE Capital has announced it will issue a secondSukuk in late 2010 or early 2011 (GE Capital’s first Sukuk was oversubscribed).

    Sukuk differ from western securiti zati ons primarily in that they do not pay interest. However, Sukuk are otherwise very similar to conventional bonds: purchasers seek to generate a profi t, the Sukuk mature at a set date and are backed by one or more classes of assets. Sukuk differ in that investors are not guaranteed to make a profit as with interest, but rather share profit and loss by reason of the ownership and operation of the underlying asset. A Sukuk Ijarah may be used not only as a vehicle for acquiring and owning of property, but also to raise funds for a project or to facilitate liquidity management through a structure similar to a sale/leaseback, where a property owner sells an asset to a financier for immediate funds and the continued use of the property in exchange for periodic rental payments.

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    Reprinted with permission from Islamic Finance News.