By Thomas Seal

The government could soon issue its first taxpayer-guaranteed sukuk, marking the UK’s entry into the lucrative, rapidly expanding market of Islamic finance, which was until now exclusive to Muslim countries. But what are sukuk and why are they important?

Sukuk (plural of ‘sakk’) are essentially government bonds that must comply with the moral code and religious law that comprises sharia (as any part of the holistic system of Islam must). This word will probably generate some trembling articles in the right-wing press, but sharia’s main stipulation in terms of finance is simply a ban on riba (interest). Since Islam sees money as a pure measure of value, and not a profitable asset in and of itself, the charging of interest on money is haram (forbidden). In lieu of interest, the issuer of a sukuk (in this case, the UK government) sells an investor or group the bond, who then rents it back to them for an agreed-upon rental fee. The issuer also signs a contract promising to buy back the bonds at a future date at par value. Sukuk are traded on ‘real’ assets, not risk and futures. [Read more…]