Section A

Crescent Holdings is looking to raise funds in compliance with Islamic finance principles. They are considering issuing Sukuk.

Which of the following statements regarding Sukuk are correct? (Select ALL that apply)

Answer options:

Sukuk represents an ownership interest in an underlying asset.

Sukuk holders receive a guaranteed fixed rate of interest (Riba).

Sukuk returns are tied to the performance of the underlying asset rather than a fixed interest rate.

Sukuk is identical to conventional debt, just marketed under a different name.

How to approach this question

Identify the core principles of Islamic finance, specifically the prohibition of interest (Riba) and the requirement for asset backing.

Full Answer

Sukuk are Islamic financial certificates, similar to bonds in conventional finance, but they comply with Sharia law. Sharia law prohibits Riba (interest). Therefore, Sukuk must be linked to an underlying tangible asset. The Sukuk holders own a proportional share of the asset and are entitled to a share of the revenues generated by it, rather than a fixed interest payment.

Common mistakes

Assuming Sukuk is just a foreign word for a standard corporate bond.

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Practice the full ACCA FM — Financial Management Practice Exam 2

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