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Bonds and Sukuk: A Comparative Overview

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The subject matter of this article encompasses an area of Islamic finance that has seen rapid growth over the last two decades. The objective of this article is to give the reader an overview of two commonly used debt capital market instruments: the conventional bond and, its Islamic finance equivalent, the sukuk. Bonds are the most widely used debt security on the capital markets and they can be issued in numerous forms. At a basic level a bond is a certificate of debt under which the issuer obligates itself to pay the principal and interest to the bondholders on specified dates. There are certain characteristics that one can associate with bonds; firstly a bond represents a debt obligation, secondly businesses can raise capital by issuing them since they can be marketed to a wide range of investors through a syndicate of financial institutions on the capital markets through a listing on the London Stock Exchange or to a small group of investors thorough a process known as Private Pl…