1. What is the difference between Islamic bonds and conventional bonds? Back to Top Islamic bonds are similar to conventional bonds in Malaysia. It always has fix term maturity, can bear a coupon, and trades on the normal yield price relationship (see attached appendix II on calculation method). 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. 2. Is there any difference in term of investors' protection against default? Back to Top The Islamic bonds share the same criteria as the conventional bond in the matters of non-payment/late payment of the profit portion and the principal amount. 3. Is there any liquidity premium in holding Islamic bonds? Back to Top Islamic bonds traded actively in the market by both the conventional and Islamic players. The system of Principal Dealership applies to the government issued bonds; there are currently 10 principle dealers for Islamic bonds, the same parties as those for conventional government bonds. The principle dealers are obliged to make market for Government Islamic instruments by quoting 2 way prices, and in addition, respective lead arrangers will make the market for the Islamic private debt securities.
The Islamic bond market...
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