True. As for the performance, it can out-perform or under-perform -- depends on the situation since it is more similar to equity in structure.Shaar, however, underscores that the main issue is that Islamic finance investors tend to think in conventional banking terms and are mostly performance driven, while actual Islamic finance is based on the principle of profit and risk sharing.
'Nakheel's sukuk were secured by existing real estate developments and land that incurred about 50 percent decline, which left investors with largely depreciated securities. Investors can’t expect to mimic the performance of conventional banking tools,' emphasises Shaar.
I'm not sure what he means by the underlined part. If he means there is no risk than that is wrong. But understanding of to be safer means that they must be backed by real assets unlike conventional bonds. For example if DW went bust like Lehman Bros. than sukuk bond holders of Nahkheel still would have the ownership in real assets (in this case, land of water-front properties) vs nothing in case for Lehman Bros. bonds.Khaled, a young Lebanese working in Saudi Arabia, owns sukuk issued by a Saudi group facing financial difficulties. 'I started hearing about the sukuk when I moved to the Gulf and decided to invest in this type of venture, which seemed safer than other conventional products. Now I am not so sure,' he points out.
I had a big discussion over this, I don't know why people in finance get into arguments with me on the forums... oh gee, I was disrespecting peoples' professional knowledge and underestimating my ignorance on the matter:
Anyhow, I'm enjoying my 75% return on investment :
Follow the discussion, it will bring important issues to light that I mentioned there. One important thing, I'll quote here:
Important issues never mentioned regarding Islamic finance:Originally Posted by Chuck
Originally Posted by Chuck