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Islamic bonds are similar to conventional bonds.
It always has fix term maturity, can bear a coupon, and trades on the normal
yield price relationship. For conventional investors, the structuring of the
bonds by the issuer is immaterial. The difference lies only in the way the
issuer structure the bonds.
An Islamic bonds is structured such that the issuance is not an exchange of
paper for money consideration with the imposition of an interest as per
conventional. It is based on an exchange of approved asset for some
financial consideration that allow the investors to earn profits from the
transactions. Approval of the assets and the contract of exchange would be
based on Syariah (Islamic law) principles , which is necessary to meet the
Islamic requirement.
The various type of Islamic-based structures used for the creation of
Islamic bonds are sale and purchase of an asset based on deferred payment,
leasing of specific assets or participation in joint-venture businesses.
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