Islamic Finance Law: Sukuk as a Debt Instrument in Developing Asia

This essay explores the adoption of Sukuk, an Islamic finance instrument, as an alternative debt instrument for funding infrastructural projects in developing Asian economies. It addresses the limitations of traditional foreign loans with high-interest rates and strict policies, highlighting the need for a b...Read More

Running head: ISLAMIC FINANCE LAW
Islamic Finance Law
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1ISLAMIC FINANCE LAW
Abstract
In the present times, the Asian Economies displayed a considerable amount of growth
striving to achieve a similar status in terms of economy with the conglomerates of the west.
However, in terms of the infrastructural development, it still stands as a developing country
unlike the developed countries of the west. The deficiency of technological and physical
infrastructure and an inferior class of human resources has led to decline of the rates relating
to the Foreign Direct Investment. The infrastructural projects in these countries demands an
enormous volume of funding from the Government, which Government in these countries
fails to satisfy from their budgets. This instigates these countries to avail foreign loans from
the financial institutions of international level. However, these international financial
institutions provide loans with high interest rates and strict policies are imposed by these
institutions while extending loans. These has created a need for a better variant of debt
instrument that can assist in the funding of the infrastructural process without imposing the
burden of gigantic amount of interest and stringent policies relating to the debts. In the
developing countries of Asia, owing to such a situation, there has been consideration for the
implementation of Sukuk as an alternative debt instrument, to be used for the funding of the
infrastructural project.
Sukuk implies a financing method, which has emerged from the Islamic finance and is
based on the ideologies of the Islamic Laws. Sukuk, in its general sense, implies Islamic
Bonds. It is a conventional debt instrument that provides the a right in relation to the
possession of the property or the right relating to the profit accrued from a property. Sukuk
implies certificates of the same value that represents undivided shares relating to the
proprietorship of usufructs, tangible assets and services or the assets relating to special
investments and particular projects. Sukuk can simply be defined as certificates of trust. In

2ISLAMIC FINANCE LAW
accordance with the rules and regulations relating to the Securities and Exchange
Commission, Sukuk is a certificate evidencing investment or equal value notes, which
indicates an undivided proprietorship or interest in relation to tangible, services and usufructs
or investments. The Sukuk structure ensures the holders of the certificates of Sukuk a right to
receive payments arising from an ownership, trade transaction in relation to a venture of
commercial nature or a particular asset.
This paper will strive to discuss the background that has led to the adoption of Sukuk by
the developing nations of Asia. While engaging in such a discussion the paper will refer to
the emerging economies like Nigeria and the urgency of the investment in relation to its
infrastructure. This paper will strive to provide an in-depth analysis of Sukuk with respect to
the debt financing in the developing countries. In doing so, the paper will draw reference to
the other techniques of financing. In addition, a discussion on the effective implementation of
the Sukuk will also be analysed in this paper. This paper will also provide the limitations that
might be faced in the implementation of the same. It will also provide an inference of the
implementation and the effective operations of the same.