Dr. Monzer Kahf, a prominent economist and counsellor states: Riba is prohibited in the Qur’an and the Sunnah. Its exact definition is: any increment stipulated in a loan contract. Stipulated may mean either put as a condition on the contract or it is the customary practice in its area.
It is prohibited and considered one of the major sins and acts of disobedience to Allah. The parties to a riba-based contract are declared war on by Almighty Allah and His Messenger, as stated in the Qur’anic verse that reads: “And if ye do not, then be warned of war (against you) from Allah and His Messenger.” (Al-Baqarah: 279)
The Prophet (peace and blessings be upon him) invoked the wrath of Allah on the person who deals with riba, the one who gives it, and the person who writes its contract. The Prophet (peace and blessings be upon him) also classified dealing with riba as worse than adultery. Both sayings of the Prophet are classified as authentic Hadith.
In the light of the above-mentioned definition of riba, we’d like to state that any bonds that are issued
with the condition of increment, fixed or variable, is a conventional bond even if someone or some government calls it an Islamic bond.
Exception: the word “bond” is sometimes used not in the meaning of a loan to a bond issuer, but simply in the meaning of a certificate. Accordingly, if the bond is used with relation to lease contract, even with the fixed rent for a long period, it is still permissible. The difference is that a lease (ijarah) bond represents ownership of a fixed asset—such as a building, land, a bridge, seaport or an airport—and the fixed assets are leased to a company or a government for, say, twenty years at a fixed annual rent. This kind of bond is permissible in Shari`ah.
The OIC (Organization of Islamic Conference) and the International Fiqh Academy preferred to call it sak (pl. sukuk) in order to avoid the Arabic word sanad (pl. sanadat) that has become used exclusively for loan-based bonds.