Sukuk and capital markets

Sukuk al-istisna

Certificates that fund the manufacture or construction of an asset, which then belongs to the holders.

Sukuk al-istisna are certificates of equal value issued to raise funds for the production of goods or the construction of an asset, so that what is produced comes to be owned by the certificate holders. AAOIFI's investment sukuk standard says that once the funds have been converted into a price owed by the ultimate purchaser, trading in istisna certificates becomes subject to the rules on disposal of debts. They are used for projects that are financed during construction, so the stage of the project determines what a holder actually owns.

Sources

AAOIFI Shari'ah Standards, English edition (full text, PDF): Shari'ah Standard No. 17, Investment Sukuk, items 3/4 and 5/2/13

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

IstisnaA contract to manufacture or build a specified asset for delivery on a set date, with the price paid in stages or as a lump sum.Parallel istisnaA second, independent istisna in which a bank that has agreed to deliver an asset orders it from a manufacturer or contractor.SukukCertificates of equal value representing undivided shares in the ownership of assets, usufruct, services or a project.Tradability of sukukWhether sukuk may be sold on, which depends on what they represent: assets and usufruct, or debts and cash.