The word sukuk is the plural form of sakk, which means a written note of a financial transaction. It is usually translated as ‘Islamic bonds’, but sukuk are not the same as conventional bonds. Their development as an Islamic asset class originated in a decision promulgated in 1988 by the Fiqh Academy of the Organisation of the Islamic Conference that any collection of assets can be represented in a written note and that this note can be traded, as long as it represents mostly physical assets, rather than cash or debt. One of the principles that Islamic finance must observe is that debt cannot be traded.
With a conventional bond, money is lent to a company or government by an investor in return for the payment of a fixed rate of interest. This fixed interest naturally makes them unacceptable to an observant Muslim investor. In the Islamic alternative a return is paid to the investor from the income stream generated by an underlying asset, usually some kind of property. All the different kinds of halaal forms of income generation can be used in sukuk. Indeed, the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) has described fourteen different kinds of structure for sukuk. Some types of contract are considered by scholars to be acceptable ways to