SLIDE BLOCK 1
01 What is a bond? (السندات)
Bonds are transferable deeds/instruments, issued by companies or
governments, which represent long-term loans, for incremental
financial revenue. Usually, they are allocated by public subscription.
Issued by
Companies or governments.
Represents
A long-term loan to the issuer.
Purpose
Incremental financial revenue (interest).
How sold
Usually by public subscription.
Four characteristics
- Equal in value.
- Have a nominal value.
- Transferable.
- Cannot be divided against the company.
Mnemonic
Same four traits as shares (Lecture 6): E.N.T.I. —
Equal, Nominal, Transferable, Indivisible. The traits match; what they
represent is the opposite — debt, not ownership.
SLIDE BLOCK 2
02 Investment certificates (شهادات الاستثمار)
The first name bonds go by. There are three types:
| Type | How it works |
|---|---|
| a. Increasing nature | Money stays with the bank long-term — up to ten years — accumulating an ascending increase on principal and interest. At the end the holder gets what they paid plus the increase. |
| b. Current yield | The holder receives a specified annual interest. |
| c. Increasing value with lottery draws | Earns increasing interest and is entered into draws that award prizes to winning certificates. |
Certificates with prize opportunities
These blend interest with prize draws: a fixed interest rate plus the chance of winning extra prizes. Their selling points are attractive rates and the “encouragement to save” that a possible prize gives.
Common mistake
Thinking the prize makes it a different product. Every one of the
three types still pays interest on a loan; type c
simply adds a lottery on top.
SLIDE BLOCK 3
03 Treasury bills (أذونات الخزانة)
Issuer
The government.
Term
Short — usually three months.
How sold
Public subscription via tenders (a bidding
process).
Strength
Very high liquidity — short-term and guaranteed.
Weakness
Scant revenue.
For these reasons treasury bills are the best-seller for commercial banks despite the low yield.
Mnemonic
T-bills = Three months,
Tenders, Top liquidity.
SLIDE BLOCK 4
04 Loan bonds (سندات القرض)
Negotiable, indivisible certificates of equal face value issued to
subscribers in exchange for amounts they lent to the company as a
long-term loan, raised through a public subscription.
Issuer
Corporations, municipalities or government entities raising capital.
Structure
A formal agreement: the issuer borrows from investors and pays it
back with interest over a specified period.
SLIDE BLOCK 5
05 Three types of corporate bonds
| Type | Paid at subscription | Interest calculated on | Extra feature |
|---|---|---|---|
| a. Ordinary bond | = face value | Face value | Face value returned at maturity. |
| b. Redeemable with an issue premium | Less than nominal (e.g. pay 900 SAR for a 1,000 SAR bond) | Nominal value, not the issue value | The 100 SAR difference is paid back at maturity. |
| c. Guaranteed bond | = face value | Face value | Backed by a personal guarantee (government or bank) or a real guarantee (a mortgage on the company’s real estate). |
Common mistake — the premium bond
Interest is on the 1,000 (nominal), not the 900 paid.
So the holder gains twice: interest on money they never paid, and the
100 SAR premium at maturity.
SLIDE BLOCK 6
06 Bonds vs. shares — four differences
| Bond | Share | |
|---|---|---|
| 1. What it is | A debt on the company | A portion of the capital |
| 2. Return | Fixed profit whether the company is in the black or the red | Nothing if the company makes no profit |
| 3. Rights | No general assembly, no vote, no control | Attend, vote, control and other shareholder privileges |
| 4. At dissolution | Repaid first | Gets nothing until bonds and debts are paid |
Mnemonic — “Debt, Fixed, Silent, First”
A bondholder is a Debt-holder with a
Fixed return who is Silent in the
company and paid First. Flip each word and you
describe a shareholder.
SLIDE BLOCK 7
07 The ruling on bonds (حكم السندات)
Bonds are prohibited, because they are based on usury (riba), which the Holy Quran and the Prophetic Sunnah forbid.
Evidence — Sahih Muslim
عَنْ جَابِرٍ رضي الله عنه قَالَ: لَعَنَ رَسُولُ اللَّهِ ﷺ آكِلَ
الرِّبَا، وَمُوكِلَهُ، وَكَاتِبَهُ، وَشَاهِدَيْهِ، وَقَالَ: «هُمْ
سَوَاءٌ»رواه مسلم
Allah’s Messenger ﷺ cursed the one who accepts usury, the one who
gives it, the one who records it and the two witnesses to it,
saying, “They are all the same.”Reported by Muslim
Common mistake
Thinking only the bank that takes interest is blamed. The hadith names
four: the one who takes it, the one who pays it, the
scribe, and the two witnesses — “they are all the same.”
SLIDE BLOCK 8
08 The legitimate alternatives (البدائل الشرعية)
A. When a company is in deficit
Instead of interest-bearing loans, raise capital through equity — issuing new shares — or by forming new joint ventures and partnerships.
B. When the government budget is in deficit
- Good loans from individuals — without riba.
- Advancing zakat collection — the Prophet ﷺ took the zakat of his uncle Al-Abbas two years in advance.
- Encouraging voluntary donations from the public.
- Imposing exceptional taxes to cover the deficit.
Mnemonic — “Loan, Zakat, Give, Tax”
For governments: a good Loan, early
Zakat, public Giving, exceptional
Tax. For companies, one answer:
shares, not bonds.
SLIDE BLOCK 9
09 The whole lecture on one line
- DefinitionA transferable deed representing a long-term loan, sold by public subscription.
- NamesInvestment certificates (3 types, one with prizes), treasury bills, loan bonds.
- Corporate typesOrdinary, redeemable with an issue premium, guaranteed.
- Versus sharesDebt not capital, fixed return, no rights, repaid first.
- RulingProhibited — riba. Hadith of Jabir in Muslim.
- AlternativesCompanies: equity. Governments: good loans, early zakat, donations, taxes.
SLIDE BLOCK 10
10 Flashcard glossary
Click a card to flip it.
SLIDE BLOCK 11 · FINAL CHECK
11 Pop quiz
14 questions covering the whole lecture.