Islamic Finance – Islamic Capital Market - Malaysian Islamic bonds
The securitization of debts serves as the foundation for Islamic bonds in Malaysia. Usually, the issuer is a business looking to issue Islamic bonds in order to generate capital. A credit transaction is used to solve the problem because Islamic law prohibits borrowing in exchange for paying interest. The contracts known as Murabahah, "Inah," "Tawarruq," "Ijarah," "Salam," and "Istisna" are used to establish Islamic duties. In Malaysia, the selling and buyback agreement known as Bay al-'Inah is the most typical. In this structure, the issuer will choose a resource to offer to investors in exchange for money, let's say $100 million. The investors will then transfer the asset back to the issuer for $120 million, payable over the course of five years, at principal plus a markup. The issuer now owes the investors $120 million, which is made up of the original amount and the markup amount. The issuer will pay the investors the markup amount in fixed installments, such as twice a year, usually in the shape of a coupon. Only on the maturity date will the capital be returned.
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