Background

Islamic Bonds

Demand for Islamic bonds has grown substantially but still lags behind mainstream debt markets. They operate within the rules and principles of Islamic law (shari'a) and presently remain markets where investors hold bonds to maturity. Islamic bonds have gained universal acceptance as a viable alternative to conventional products. Aside from the obvious attractiveness among Muslim investors, Islamic bonds may also appeal to conventional investors looking for attractively-priced instruments for regular income and capital gains. The strong investor demand offers issuers access to an alternative cost effective fundraising option. Moreover, efficient price discovery processes for Islamic securities in some countries-for example, the issuance of Islamic Treasury Bills and Government Issues in Malaysia-has led to the establishment of an Islamic benchmark yield curve.

The international Islamic bond market is divided into sovereign (and quasi-sovereign) and corporate certificate (sukuk) markets. A prerequisite for an Islamic issue is shari'a compliance, which prohibits the charging of interest (riba). Sukuk markets are particularly innovative and are rapidly expanding with significant new issuance. Islamic bonds are structured financial instruments based on a specific contract of exchange that can be made through the sale and purchase of an asset based on deferred payment, leasing of specific assets, or participation in joint-venture businesses. They are issued internationally by sovereign or corporate entities and are generally of medium-term maturity with risk-return characteristics similar to conventional debt securities. Structuring Islamic bonds requires approval from recognized shari'a advisors to ensure compliance with Islamic rules and principles. In addition, Islamic bonds can be structured to provide investors additional protection against late payment, prepayments, and potential write-offs, among others. This protection comes as part of credit or liquidity enhancement schemes.

Islamic Insurance

Islamic Insurance, or takaful (mutual support), is a financial transaction between two parties to protect one of them from unexpected future material risk. In a takaful transaction, the party called the participant (insured) pays a particular amount of money known as the contribution (premium) to the another known as takaful operator (insurer) with a mutual agreement that the insurer will provide the participant with financial protection against unexpected loss, should it occur within the agreed period.. If there is no payment to the insured within the contract period, they are entitled for a share of profits made out of the cumulated paid-premiums based on the principle of al-Mudharabah (profit-sharing).
Islamic insurance companies offer a multitude of general insurance funds (products) covering life, education, health, fire, accident, theft, travel, and corporate, and machinery, among others.