Wednesday Academic Dialogue Subject-1433-08
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Sukuk, An Economic and Shari'ah Examination
Dr. Mohammad Ali El-Qari
Former director of the Islamic Economics Research Center at King Abdulaziz University
He is currently a consultant in Islamic banking and Islamic finance,
and a member of several Shariah board in a number of banks,
Islamic financial institutions, and has many research
and scientific papers published in the field of economics and finance
The Abstract: The purpose of this paper is to promote the discussion on how Sukuk benefitted from the standard asset securitization structure of the Common Law, Special Purpose Vehicle (SPV) and separating title from beneficial ownership. The French law does not allow such separation. “SUK” which means in classical Arabic: a certificate evidencing financial obligation. Modern Sukuk can be defined as: Tradable certificates that offer predictable return at relatively lower risk. The basic structure of Sukuk has three players, Sukuk Issuer, Sukuk Managers, and Sukuk Holders. We will also need the Special Purpose Vehicle (SPV) within the legal infrastructure. The Sukuk Manager will receive the payments from Sukuk Holders and act on their behalf to enter into a contract with the Sukuk Issuer. In case of Ijarah Sukuk, the Sukuk manager will purchase the asset from the Sukuk Issuer and lease it back to Sukuk Issuer through a lease contract, with a promise to sell back at end of lease contract. While in the case of Mudarabah Sukuk, Sukuk holder advances the capital of the Mudarabah to the Sukuk Manager who enters into a Mudarabah contract with Sukuk Issuer who will become Mudarib. The profit will be shared as per the agreed ratio in the contract. The paper also discusses a few case studies.
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