Islamic Finance – Islamic Capital Market - Malaysian conventional bonds verses Islamic bonds3/7/2023 Islamic Finance – Islamic Capital Market - Malaysian conventional bonds verses Islamic bonds
The table above demonstrates how structurally comparable Malaysian Islamic bonds are to conventional bonds. The only difference between conventional bonds and Malaysian bonds is that in Malaysian bonds, the obligation to pay the investor results from Islamic contracts, and the coupon payable to investors represents the profit margin or mark-up resulting from a sale contract rather than an interest payable under a loan contract. This is the most basic Islamic security framework that mimics the behaviour of traditional bonds. The fundamental component of Islamic bonds, in contrast to the Sukuk framework, is the securitization of receivables. Receivables rights are represented by the securities issued, which can be sold or passed to third parties on the secondary market. Debentures, which are basically unsecured promises to pay a sum backed by the overall creditworthiness of the issuer, are what Islamic bonds are. The grade of the issuer is used to let investors know whether the issuer has the financial resources to make timely principal and coupon/profit payments. It is evident that the Islamic contracts have imposed obligations on the issuer who receives cash funding in some manner. The issuer will use the proceeds from these contracts to support general working capital needs or any other purposes, provided that the use of these proceeds complies with Shari'ah. The trading of these securities, which is founded on the Bay al-Dayn principle of the sale of debt, is very divisive on the international market.
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