One of the dirty little secrets of the world of Shariah-compliant finance is the fact that it is dominated by a rogue nation with a nuclear weapons program and a long history as the world’s foremost sponsor of Jihadist terrorism: Iran. This is something that regular readers of SFW know well:

Until recently, Iran was not a leader however, in one of the newest Shariah-compliant products: Sukuk. That is changing as of this month…

Ali Saleh-Abadi, the President of the Iranian Securities and Exchange Organization (SEO) announced this week that SEO ratified issuing sukuk, sometimes called Islamic bonds. On 13 March, Mahan Airline issued Sukuk with the value of IRR 291 billion in Farabourse (Iran’s OTC market) to finance its network developmental projects for the first time in the Iranian Capital Market.

“The Organization is developing the regulation of a new financial instrument called Istisna (Sukuk Using Al- Istisna Structure), which is expected to be approved by the Supreme Council of Exchange early next year”, a SEO spokesman noted.

Saleh Abadi added that currently six other companies have lodged their requests for issuing Sukuk to the Securities Exchange Organization. In addition to these companies, a company has requested to issue Sukuk in the free zones with the aim of attracting foreign investment.

Sukuk cover Islamic investment instruments that are registered in the name of the bondholders. Sukuks are always linked to underlying assets through a variety of contract structures such as Istisna, Ijara or Musharaka contracts.

Holding a sukuk certificate represents ownership in the underlying asset. Sukuk are generally treated as a guaranteed debt. Although similar in structure to asset-backed securities, a sukuk’s issuer is obliged to pay the bondholder 100% of the redemption amount and a periodic distribution amount, regardless of how the underlying asset performs.

One of the main properties of sukuk has been that they are a much more expensive way to raise money as compared to conventional debentures. Because of this, and for other reasons, the default rate on sukuk have been markedly higher than that for bonds.


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