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KembaraXtra – Islamic Finance – Islamic Capital Market – Preference-Like Instruments
Preference-like instruments are quasi-equity instruments that resemble preference shares but do not grant full equity ownership. Investors usually receive priority in profit distribution or capital repayment over ordinary shareholders, while not having voting rights or control over management decisions. This places the instrument between debt and equity in nature.
In Islamic finance, conventional preference shares are generally not permissible due to guaranteed dividends. However, Sharīʿah-compliant preference-like instruments may be structured with non-guaranteed, performance-based returns, ensuring that profit distribution depends on actual business outcomes rather than fixed entitlements.
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