Banking
Sukuk
Islamic certificates that give investors a share in assets, used in place of bonds.
Last reviewedWhat does Sukuk mean?
Sukuk (the plural of sakk) are certificates that give investors a share in the ownership of, or the income from, specific assets. They serve the same funding purpose as bonds. Governments, banks and companies in the Gulf, Malaysia, Indonesia and elsewhere issue them. Example: a government places toll roads worth 500 million into a structure, sells 500 million of sukuk to investors, and pays holders the rent it pays to keep using the roads. For investors many sukuk behave much like bonds, which some scholars debate.
Example
Instead of interest, holders receive a share of the profit or rent those assets produce, for example the rent from an ijara lease.
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Related terms
- IjaraAn Islamic finance lease: the bank owns the asset and rents it to the customer.
- MurabahaAn Islamic finance sale at cost plus an agreed profit, usually paid in instalments.
- TakafulIslamic insurance built on mutual help, where members share each other's losses.
- Net interest margin (NIM)What a bank earns on its loans and investments after paying for its funding, as a share of those assets.
- Cost-to-income ratioOperating costs as a share of operating income. Lower means a more efficient bank.
- Cost of riskLoan loss charges as a share of loans, usually quoted in basis points.
- Non-performing loan (NPL) ratioThe share of a bank's loans that borrowers have stopped paying.
- CET1 capital ratio (and risk-weighted assets)A bank's highest-quality capital as a share of its risk-weighted assets.