Islamic Finance – Islamic Capital Market – Sukuk Musharakah
Since both Sukuk Musharakah and Sukuk Mudarabah are equity-based arrangements, they are comparable. However, a Musharakah contract only has certain characteristics. These include I the requirement that both parties to a Musharakah contract contribute capital to the venture; (ii) the requirement that, while a PSR may be negotiated, loss sharing must be proportionate to capital contribution; and (iii) the right of both parties to participate in the management of the venture. An identified business venture, such as improving the amenities at an airport, is funded by both the firm and investors. The capital may be provided in kind, such as forklift vehicles, or in cash. The business and investors will split the profit, if any, in accordance with the PSR that was reached. According to the Tanazul concept of waiver, it is also acceptable to waive some profit in the company's favour. Given that Sukuks are thought to act like fixed-income instruments, investors would expect to receive the expected periodic profit distribution, say biannually. Both the Mudarabah and the Musharakah do not involve debt-based funding. No party is required to make a set payment in the form of income or profit, and the invested capital is not guaranteed.
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