Development of institutions and financial instruments based on the shari'a is an important part of efforts to develop Islamic finance. Is an attempt grounding teaching sky. Other efforts were not a continuation of the development of concepts and theories that did not stop only at the normative level only.

The approach can be done there are two kinds. First, the discipline that promotes new alternatives to conventional commercial finance. Here the creative efforts of interpretation of religious teachings to promote a new alternative that is believed to provide a greater benefit with a minimum level of harm. The second approach is to reevaluation of the concept and practice of existing conventional financing with Islamic law (fiqh). By questioning and judging whether the concepts and practices are in line with sharia.

Judgments will fall on the determination of lawful, makruh, Mubah, sunnah, or unlawful. It is interesting to question the bonds and options from the perspective of sharia example. It seems so far, which seems more dominant is the second approach, although the first approach did not stop done. Establishment of institutions-banks for actual results can be classified as a result of the first approach. In terms of assessing Islamic bonds, two approaches should be used.

Is Bonds Sharia?
Islamic bonds must be different from conventional bonds. Since there is convergence of opinion that the interest rate (interest rate) is usury, the instruments have a component of interest (interest-bearing instruments) it will step aside from the list of permissible investments. Therefore, raised the so-called alternative Islamic bonds.

Islamic bonds known as muqarada bond, proposed as an alternative to interest-bearing bonds. Muqarada is synonymous with an equally qirad with mudharaba. Sederhanaya is a loan translation of results or profit-loss sharing. These financial instruments have to get approval from the IOC Academy. This means that already can seal internationally lawful.

Muqarada bond issued by the company (as mudarib, manager) to investors (as rabb al mal, owner of the funds) with the purpose of funding specific projects that run the company. The project is a separate character with the general activities of the company. Periodically distributed profits based on a certain percentage agreed upon. Analogues as regular coupon bonds distributed periodically. But this coupon is not ditentulkan percentage of the (fixed pre-determined). Percentage is the ratio of profits, so the base meggunakan profit-loss sharing. This contract also provides a bond payment at maturity or expiration. These contracts actually the same as mudharaba. And already applied in some countries such as Jordan and Turkey. Similar to the principles of Islamic bonds are instruments such as the Islamic certificate of deposits are considered as medium-term instruments.

Secondary market for Islamic bonds
Bonds trading in the secondary market interest arose because the purpose of liquidity (as-suyulah). In fact, almost all Islamic bonds purchased for the long-term investments until maturity or her maturity. Trading still occur, but only at the IPO and the due date at a price of par, together with nominal bonds listed on the certificate (shahdah al-Dayn).

If there is not trading on the due date, then the contract is made bai al-Dayn. Bai al Dayn is defined as "the sale of a right that normally payable from a transaction raises, services, loan, to the debtor himself, or to any third party" [Rosly and Moustapha (1999)]. Most scholars of this transaction memfatwakan unlawful by reference to the hadith narrated Daruqutni. Hadith in question is that Ibn Umar said, "The Prophet forbade the sale of debt with a debt payment amount is different at other times". Because of the debt purchase and sale transaction is seen as a major element of his usury. This opinion is widely accepted, therefore the secondary market opportunities for Islamic bonds to be very small.

But there are Islamic bonds secondary market in Malaysia. Issuance of bonds as the bonds of his certificate through a process of asset securitization on the principle of bi thaman ajil murabaha. Is a sales contract with the suspension of payments basis (deffered payment) and the price is determined on the basis of fixed mark-up profit. Because the objects in the sale of Islamic law is a commodity that has a certain value. Therefore, securitization done to make these notes as a claim on the pledged assets. Then the bond is issued through an initial public offering through an auction mechanism or bidding process (bai al muzayadah) with discount. Explanation of the validity of such a mechanism is provided by Ngadimon [1999].

This process is different from muqaradah bonds which do not seem problematic, also because there is no secondary market. Islamic bonds in Malaysia invites big controversy. Because, in principle, the income from buying and selling debt is riba. Because the debt remains a debt, although supported by its underlying asset. Thus majority of scholars. Sami Hasan Houmoud (in response to discussion paper pointer Rosly and Moustapha [1999], "Dayn Bay'an Islamic Bonds and Issues in Malaysia", International Conference on Islamic Economics in the 21st century, Kuala Lumpur, 1999) from the IDB said that for the case of Malaysia , "It is obvious that what was practiced under the name of Islamic Bonds were not Islamic."

Indeed there should be caution in developing products using sharia label. Because open opportunities in practice actually deviated from the substance of sharia. In the Islamic economy symposium last week (3/04/2000), Prof. MA Manan, IDB consultant economist, ordered that if an Islamic financial institution carrying kemudharatan Instead, you should not even have to carry the name of sharia. Because the community will be able to judge which is just a label and which ones are truly Islamic. Something shifted from welfare to misery had nothing to do with sharia. Really Islamic may not even carry his sharia label, but the substance remains grounded in sharia.

Success of a financial market, whether Islamic or otherwise, will depend on the trust factor of the system and processes, diversity and quality of product, and the confidence of investors and issuers to use financial products. A framework arrangement can be designed to influence these factors.

With the conditions described above, the future of Islamic bonds can still be seen prospectively in line with developments other Islamic financial institutions. Small possibility of a secondary market these bonds can indeed be a development constraint, because investors will still want liquidity.

Alternatively, the secondary market is still trading at par with. Or expand the reach of investors with a holding period is consistent with the bond matures. Once again, success still depends on investor confidence factor.