Asset-backed and asset-based sukuk
The distinction between sukuk whose holders have real recourse to the assets and those relying mainly on the obligor's promise to pay.
Sukuk are described as asset-backed when holders have genuine ownership of, and recourse to, the underlying assets, and as asset-based when ownership is largely beneficial and holders rely mainly on the obligor's credit and purchase undertaking. The distinction is not a Shariah category in itself, but it matters for risk, rating and legal enforceability. Rating agencies and regulators look at the legal transfer of the assets to decide which description applies.
This entry explains a term; it is not a Shariah ruling. Approving a product is for each institution's own Shariah board and regulator.
Related terms
SukukCertificates of equal value representing undivided shares in the ownership of assets, usufruct, services or a project.Purchase undertakingA unilateral promise by the originator or obligor to buy the sukuk assets from the holders at maturity or on default.Sukuk al-ijarahSukuk whose holders own leased assets and receive the rent paid by the lessee as their return.Sukuk al-wakalahSukuk whose proceeds the obligor invests as agent in a portfolio of eligible assets, for an agreed fee.