Riba, Ijtihad and Shari`ah Provisions on Sukuk Prof Abdullah Saeed University of Melbourne Australia

What this Presentation is about The tension that exists between three trends of thought seen in the debates on Islamic finance today with particular reference to sukuk. Exploration of the issue through a closer look at one particular type of sukuk and the relationships involved. Asking some fundamental questions about the limits of ijtihad as far as sukuk are concerned.

What this Presentation is not A history of the development of the idea of sukuk and its contemporary forms About the technical details of sukuk and how they are structured An evaluation of the performance of sukuk How far sukuk have penetrated in the global market

Sukuk: Brief Oveview Basic concept of sukuk Origins Key characteristics Sukuk vs bonds

Trends in Islamic Financial Thought re Sukuk Trends: Continuum [I……..P……UP] –Idealistic [I] –Pragmatic [P] –Ultra-pragmatic [UP] Mainstream thought re sukuk –Pragmatic –Key characteristics of this pragmatism

Relationship between Debates on Riba and those on Sukuk Riba –Idealistic –Pragmatic –Ultra-pragmatic Comparison between debates on riba and on sukuk –Approaches –Text vs context –Ijtihad vs taqlid

Sukuk and Fiqh Conceptualisation of sukuk based on fiqh principles and contracts Key principles and contracts: overview

Sukuk: Types AAOIFI and its recognition of a range of types –Brief overview Focus: Least controversial type of sukuk: –Sukuk based on Ijarah (SBI)

Example: Sukuk based on Ijarah (SBI) How it is viewed by regulators, practitioners and Shari`ah scholars Nature of the contract (fiqh) on which SBI is based

Key Relationships: 1 Originator   Special Purpose Vehicle (SPV)   Holders of Sukuk (HoS) Originator –Role and function Special Purpose Vehicle –Role and function Holders of Sukuk –Role and function

Key Relationships: 2 Relationship between the Originator and Special Purpose Vehicle –Assets –Duration and time –Lease –Funds from sukuk –Rental payments –Lease back –Title

Key Relationships: 3 Relationship between HoS and SPV –Nature of this relationship –Issuing sukuk –Funds generated from the sukuk –Payments to HoS Relationship between HoS and Originator –Nature of the relationship

Basic Principles and Interpretation: Unchangeable? -1 To be emphasised –Assets: type –Ownership: type & degree –Contractual form –Key relationships: direct/indirect

Basic Principles and Interpretation: Unchangeable? -2 To be avoided Riba –Idealistic definition –Pragmatic definition –Ultra pragmatic definition Maysir –Idealistic definition –Pragmatic definition –Ultra pragmatic definition Gharar –Idealistic definition –Pragmatic definition –Ultra pragmatic definition

Principles and Immutability Text-based? Ijtihad/Context based? Degree of mutability and immutability Trend that is at the forefront today –Key thinkers & their arguments –Key practitioners & their arguments

Pragmatic Adjustments Nature of ownership: –Originator-SPV –SPV-HoS SPV as an intermediary Degree of ownership of HoS in the underlying assets Predetermination of the value of sale of assets back to the originator (from SPV) Rate of return and interest rate

Challenges Differentiation between ‘bonds’ and sukuk Islamicity of the products offered and degree of acceptability Idealistic and ultra-pragmatic constraints Triumph of pragmatic trend? Limits of ijtihad? Where to from here?