When considering and researching different forms of investment, you’ll come across the term ‘bond’. Many people invest in bonds as they see them as safer and typically less volatile options than stocks. Sukuk and bonds provide relatively safe periodic returns to investors.
We’re going to break this post into two parts: halal bonds and conventional bonds.
Islamic finance offers a halal option to bonds that can be purchased as a financial certificate called sukuk. It is sometimes also called an Islamic bond. As you may already know, Islamic financing prioritizes the concept of profit-sharing.
With Sukuk, the money is invested in assets that provide you with a range of returns based on a pre-agreed ratio. If the asset does not make a profit, then you do not get a return as there is no interest (riba) involved. It also differs from conventional bonds as in the long run, the sukuk holder can potentially own part of the asset. To be considered legitimate a sukuk investment will need to meet certain criteria.
Did you know sukuk has been around for a long time? It has existed for centuries – since at least the 9th century!
Conventional bonds that can be purchased in Western countries are riba based, which is why they are considered haram. They are loans to governments or corporations, and they pay interest over time.
Imagine you have a special piggy bank called a ‘bond’. When you put your money in this piggy bank, you are actually lending your money to someone or a company. They promise to keep your money safe for a certain time, like a secret agreement. After the agreed time, they return the money to you that they borrowed + interest. This is why some people invest in bonds because they can make extra money.
Types of bond investments (both halal and non-halal):
If you are in Saudi Arabia, you can go to the Saudi Exchange site to track the market.
Conventional forms of bonds are not halal, thus we’d recommend looking into halal options and alternatives. You can definitely find halal ETF options to invest in!
We suggest that you do your research before putting money into any form of investment. Of course, there is always a risk when it comes to investing but by having done research beforehand will give you a greater sense of the potential risks and rewards.