How do Islamic Bonds work..

Society Religion & Philosophy
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Pakistan has started moving into the Islamic bond market, so my question is how exactly does an Islamic bond work?

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Re: How do Islamic Bonds work..

i suppose it does not offer you interest but gives you returns based on profit or loss of the bond. which technically gets you to the same spot as a regular bond since its rating would also determine its interest pmts etc. kher, i would like ot hear more from people who know this first hand.

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Re: How do Islamic Bonds work..

So wheres the difference in an 'islamic bond' and a regular bond?

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Re: How do Islamic Bonds work..

Islamic bond uses Elfy and regular one user Crazy Glue.
P.S shouldn't this be in eco forum?

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Re: How do Islamic Bonds work..

I dont know if this is any help, its from a seminar which i went to few weeks ago on ‘Islamic bonds & the global capital equity market.’

Islamic financial products and developments around the globe.
By Wan Abdul Rahim Kamil.

Innovative Islamic Retail Banking Products- Future Prospects
•For Asset Creation, the Common Islamic Financial Contracts applied to banking or financing activities can be classified into:

  • Contracts of Sale:
    •Bal’al Salam (cash purchase future delivery sale)
    •Bal’al Istisna (progressive future delivery and future payment only)
  • Contracts of Purchase on Credit:
    •Bai’ Bathaman Ajil or Bai’ Mu’ajjal (deferred payment or credit sale)
    •Murabaha (cost plus sale on deferred payment or credit terms)
  • Contracts of Hire:
    • Ijarah
  • Other Applications- compounded structures such as:
    • Ijarah thummal bai’ (ijarah with option to purchase upon expiry of ijarah tenure) for alternative to Hire Purchases.
    • Omnibus Facility involving mix of all contracts for specific needs of the cutomers e.g. qard al hasan(good loan at no interest or additional charges) with murabaha or ijara, etc.

•For Liability Creation, the Common Contracts are:

  • Wadiah (trustee custodial or safe keeping)
  • Mudharabah (profit sharing investment)

There were some orgs mentioned and heaps of other things mentioned..
http://www.iasb.org/
http://www.aaoifi.com/

http://www.iifm.net/index.php

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Re: How do Islamic Bonds work..

Thanks MM..interesting stuff..but i was hoping there would be some gupshup experts on the subject!...

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Re: How do Islamic Bonds work..

Zakk

from what I know, technically there is no difference in a regular bond and islamic bond. interest is called profit..not interest, profit amount is based on the isk level of a bond, and thus although its theoretically possible for you to lose your money (a loss) its unlikely, or rather just as likely as losing your money in a regular bond.

Maybe those who say investment interest is haraam know more about it :)

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Re: How do Islamic Bonds work..

hmm so what's the criteria for an Islamic bond to be considered shariah compliant? I understand mutual funds which are shariah compliant..I understand Shariah housing finance...the shared ownership schemes etc..but this doesn't make any sense..after all who fixes the rate of "profit" if it's pegged according to interest rates..how can you call that anything but interest? ..(that last bit applies to housing finance as well)

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Re: How do Islamic Bonds work..

Zakk

u understand shariah housing project? I dont, i mean I dont think it is very different than regular financing, you may call something by a diff name, but the entire calculation basis and functioning is the same as a regular fixed rate mortgage.

There are many ppl here who will jump up and down against interest, but they cant describe the difference between this and the traditional financing and bonds.

I, like yourself, am waiting for the answers as well.

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Re: How do Islamic Bonds work..

Can Kafirs invest in Islamic bonds? Can I ivest moeny saved from my Liquor store business into the Islamic bonds?

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Re: How do Islamic Bonds work..

you can invest your money anywhere

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Re: How do Islamic Bonds work..

The principle against interest loans is that it should be that the profit earned is not exploitative. People should not face debt traps from sudden interest rate spikes..the only thing I see in some of these schemes is that you get punished rather than rewarded in the long run..and I also object to the excessive usage of the term Islamic loans..if they work..why not market them to everyone?

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Re: How do Islamic Bonds work..

Zakk I wish we agreed about pakistani poltics as much as we agree on this issue :)

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Re: How do Islamic Bonds work..

They work like anyother bond. Bonds are issued to raise Capital (for medium to long term). The only difference is that the Capital is invested in “Islimically Inclined industry”, it will not be likely for that Capital to be used in, for example, building Casinos or Bars. The term Islamic Bond is very confusing. They should give it some other name, because it is only a ploy to attract money from those who have no clue how it is invested. They buy these bonds just because it has “Islami” written on them. Just because something has Islamic in the name doesn’t necessarily makes it one.

:jhanda:

I agree with Zak.

Zak :salam:

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Re: How do Islamic Bonds work..

the name is bond, islami bond