What do Sukuk represent in Islamic finance?

Sukuk represent a unique financial instrument in Islamic finance, functioning as Sharia-compliant investment certificates that are linked to specific assets. Unlike conventional bonds, Sukuk do not represent a debt obligation; instead, they embody ownership in tangible assets or projects. This distinction is crucial, as Islamic finance prohibits earning interest (riba), which is typically associated with conventional debt securities.

When investors purchase Sukuk, they acquire a proportional share in the underlying asset, project, or business venture, which generates returns based on the asset's performance. This makes Sukuk an attractive investment option for those seeking to comply with Islamic principles while still achieving returns on their investments.

While equity shares represent ownership in a company and real estate properties are tangible assets, neither aligns with the specific characteristics of Sukuk. Debt securities also do not fit, as Sukuk are structured around asset ownership rather than just an obligation to repay borrowed funds. Thus, Sukuk stand out as distinct instruments designed to meet both investment goals and Sharia compliance in the Islamic finance system.