Did you queued for Sukuk Bonds?

Excerpts from TheStar report on 17th April:

KUALA LUMPUR: The RM2.5bil Sukuk Simpanan Rakyat government bond launched Tuesday is all snapped up.

The bond issue has been increased and Malaysians can continue to buy the bonds, the Ministry of Finance said in a statement Friday.

Go to www.treasury.gov.my or www.bnm.gov.my/sukuksimpanan for details or contact Bank Negara Malaysia TELELINK at 1300 88 5465.

http://thestar.com.my/news/story.asp?file=/2009/4/17/nation/20090417172535&sec=nation

It is never a surprise to see such news, especially with the current gloomy state of economy. In the past, people have been queuing outside the bank as early as 5 a.m just to get a share of Amanah Saham Wawasan and Amanah Saham Malaysia(ASM). However, how many people really know how Sukuk works ?

This is one of the problem with Malaysians, the "herd mentality" and "kiasu"(scared to lose) spirit. Many jumps into the bandwagon without even a single knowledge of what Sukuk uses as their investment vehicle. Malaysians seems to be very confident with the government when it comes to bonds and trust funds as compared to government policies. *grin*

Back to Sukuk. Since interest bearing bonds are not permissible in Islam, hence Sukuk are securities that comply with the Islamic law and its investment principles, which prohibits the charging, or paying of interest. Sukuk normally invests in HALAL assets by providing short term LOAN and revenue collected from these assets will be distributed as dividend to bond holders. A simple scenario would be investing (as a short term investor) in toll concessionaire or even real estates (by providing loan for development and expansion) which in turn generates steady fixed income.

Here comes the question many will ask when they make an investment.(but surprisingly not when they invest in Sukuk!) What happens if the investment loses money? Well, in Islamic finance, the risk is SHARED. However, when it comes to Sukuk bonds issued by Malaysian government, the risk will be guaranteed by the Malaysian government. (though I am not sure what is the level of guarantee, but I am sure that the coalition government does not want to lose their next election,:))

Sukuk bonds provides you with 5% annual return, to be distributed on quarterly basis. The bond will mature after 3 years. For those who didn't manage to grab a share of it, here's the good news from BNM. For more information on Sukuk, http://en.wikipedia.org/wiki/Sukuk