In their article titled “A Window Into Islamic Banking: What Changes Will The New Law Bring For Russian Companies”, Alexander and Regina discuss the Islamic finance system – which is new for Russia – and the Islamic alternatives to bonds, mortgages, and leasing.
There are many types of financing in Islamic banking. The article describes the most common of them: murabaha, musharaka, ijara, and sukuk.
Murabaha is usually used to structure trade finance deals, as well as to pay for leveraged buy-outs.
Musharaka is an alternative to an investment partnership or joint venture (JV), where the financing party and the client provide capital for implementing a new or existing project and then participate in the distribution of profits.
Ijara is an alternative to leasing. According to this scheme, as in murabaha, the financing organization buys an asset from the supplier and then leases it to the client, who regularly pays the lender the rent, that is, the share of profit agreed upon by the parties.
Sukuk – or the Islamic bonds – are securities that combine the characteristics of bonds and stocks. In recent years, the sukuk market has been actively developing, becoming an alternative to traditional financing methods.
You can find the full version of the article on the publication’s website.
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