The contribution of Islamic finance to the diversification of institutions’ funding sources: Islamic sukuk as a financing mechanism

Abstract

This study aims to highlight the contribution of islamic Financial engineering to divercifying the funding sources of institutions facing major challenges related to the need to expand and ensure their sustainability, as well as the ongoing search for adequate and stable funding sources, this is done without the constraints of traditional financing mechanisms, which rely on prohibited and highrisk riba-based transaction.
Islamic finance helps institutions develop alternative financing instruments that comly with sharia principales, sukuk are among the most significant of these innovations, if they prove effective as a key mechanism for diversifying sources of financing.
The study concluded that islamic sukuk play a general and pivotal role for both banks and institutions, the importance of islamic sukuk to banks is reflected in teir ability to absorb and depley banks excess liqquidity,sukuk also provide banks with significant flexibility to divrsify their investment instruments away from the burdens of debt and interest-bearing loans, forthermore, the nature of sukuk ensures the banks participation in both profits and losses, as for their contribution to institutions, sukuk anabel banks to raise substantial capital from investors to finance major projects and meet the needs of institutions, Additionally, they provide financial stability for institutions.