Jurisdiction(s):
United Kingdom

Key definition

Conventional bond definition

What does Conventional bond mean? A conventional bond is a fixed-rate debt security in which both the coupon and the principal (redemption amount) are set in nominal terms at issue and are not adjusted for inflation (as opposed to an index‑linked or inflation‑linked bond). It is the standard, plain‑vanilla structure used in bond trust deeds, fiscal agency agreements and prospectuses: the issuer pays periodic interest at the stated rate on the nominal principal and repays that principal at maturity, subject to any early redemption mechanics or events of default. Market price may vary, but the cash payment obligations do not. The expression is...

Lawyers’ guide to Sukuk: Shari'ah and legal principles, structuring (Ijara, Mudaraba, Wakala, Murabaha), asset and trust features, enforcement and market trends, with comparisons to conventional bonds

Published by a LexisNexis Banking & Finance expert

Practice notes

This Practice Note outlines the principal distinctions between standard bonds and sukuk, or trust certificates as they are otherwise known, (the Sukuk). It also provides an overview of the principal Sukuk structures and offers commentary on recent trends observed across the Sukuk market. This Practice Note should be read alongside Practice Note: Sukuk documentation and transaction mechanics.

What are Sukuk?

Sukuk are Shari’ah-compliant certificates, defined by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) as evidencing undivided interests in ownership of tangible assets, usufruct and services, or in the assets of specified projects or particular investment activities. The word ‘Sukuk’ is Arabic and broadly translates as ‘instruments’ or ‘certificates’. Sukuk are frequently described as Islamic bonds and, in general terms, operate as the fixed-income counterpart of a conventional bond or note instrument. Sukuk follow Shari’ah-compliant structures with the broad aim of mirroring a conventional fixed income security.

Bonds versus Sukuk

Structural features

To deliver returns for investors, all Sukuk structures rely upon either the performance of an underlying asset or a contractual arrangement relating to that asset. Accordingly, the Sukuk represents an interest connected to that asset under the relevant Shari’ah-compliant structure designed to replicate fixed-income returns instruments...

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Web page updated on 21/05/2026

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