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Musharaka Sukuk

Category — Islamic Finance
Musharaka Sukuk is based on Musharaka contracts, they are instruments issued for the use of their funds in establishing a project, developing an existing project, or financing an activity based on a Musharaka contract. The project or the assets of the activity becomes the property of the Sukuk holders.

Characteristics of Musharaka Sukuk:
1. Sharia-compliant financial instrument.
2. Profits and losses are shared based on agreed ratios.
3.A Musharaka Sukuk is suitable for mobilizing funds for new projects requiring large investment, or expanding an existing project.
4.A Musharaka Sukuk is usually of limited duration, whether short or long-term.

Types of Musharaka Sukuk:
1. Permanent Musharaka Sukuk:
They are very similar to shares, with the possibility of entering the Sukuk issuer in a certain percentage of the project capital, and offering the rest in the form of Sukuk for subscription, whether the management is for the issuer, for the Sukuk holders, or for a specific third party. A Permanent Musharaka Sukuk is considered a substitute for shares, where the issuer can expand their activity or establish a parallel project.

2. Temporary Musharaka Sukuk:
It is temporary with a specific period, an intermediate period usually, that ends with the end of the project, the season, or the end of the industrial cycle, etc.

1.A Musharaka Sukuk can be traded in the secondary market. It can be liquidated at any time on the financial market.
2.A Musharaka Sukuk can finance many economic activities, whether expanding existing activities or establishing new projects.
3. It has low investment risks because it is backed by economic assets that are characterized by high profitability.

1. Documentation requirements for a Musharaka Sukuk are relatively complex.
2. There is no guarantee of profit for any party.
3. Risk of mismanagement, resulting in less profit or even a loss.
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