Riba, IjtihadRiba, Ijtihad and and Shari`ahShari`ah Provisions on Provisions on SukukSukuk

Prof Abdullah SaeedProf Abdullah Saeed

University of MelbourneUniversity of Melbourne

AustraliaAustralia

What this Presentation What this Presentation is aboutis about

The tension that exists between three trends of The tension that exists between three trends of thought seen in the debates on Islamic finance thought seen in the debates on Islamic finance today with particular reference to today with particular reference to sukuk.sukuk.

Exploration of the issue through a closer look at Exploration of the issue through a closer look at one particular type of one particular type of sukuksukuk and the and the relationships involved. relationships involved.

Asking some fundamental questions about the Asking some fundamental questions about the limits of limits of ijtihad ijtihad as far as as far as sukuksukuk are concerned. are concerned.

What this Presentation What this Presentation is notis not

A history of the development of the idea of A history of the development of the idea of sukuksukuk and its contemporary forms and its contemporary forms

About the technical details of About the technical details of sukuksukuk and and how they are structuredhow they are structured

An evaluation of the performance of An evaluation of the performance of sukuksukuk

How far How far sukuksukuk have penetrated in the have penetrated in the global marketglobal market

SukukSukuk: Brief Oveview: Brief Oveview

Basic concept of Basic concept of sukuksukuk

OriginsOrigins

Key characteristicsKey characteristics

SukukSukuk vs bonds vs bonds

Trends in Islamic Financial Trends in Islamic Financial Thought re Thought re SukukSukuk

Trends: Continuum [I……..P……UP]Trends: Continuum [I……..P……UP]– Idealistic [I]Idealistic [I]– Pragmatic [P]Pragmatic [P]– Ultra-pragmatic [UP]Ultra-pragmatic [UP]

Mainstream thought re Mainstream thought re sukuksukuk– PragmaticPragmatic– Key characteristics of this pragmatismKey characteristics of this pragmatism

Relationship between Debates on Relationship between Debates on RibaRiba and those on and those on SukukSukuk

RibaRiba– IdealisticIdealistic– PragmaticPragmatic– Ultra-pragmaticUltra-pragmatic

Comparison between debates on Comparison between debates on ribariba and and on on sukuksukuk– ApproachesApproaches– Text vs contextText vs context– IjtihadIjtihad vs vs taqlidtaqlid

SukukSukuk and and FiqhFiqh

Conceptualisation of Conceptualisation of sukuksukuk based on based on fiqhfiqh principles and contractsprinciples and contracts

Key principles and contracts: overviewKey principles and contracts: overview

SukukSukuk: Types: Types

AAOIFI and its recognition of a range of AAOIFI and its recognition of a range of typestypes– Brief overviewBrief overview

Focus: Least controversial type ofFocus: Least controversial type of sukuk sukuk: : – SukukSukuk based on based on IjarahIjarah (SBI) (SBI)

Example: Example: SukukSukuk based on based on IjarahIjarah (SBI)(SBI)

How it is viewed by regulators, How it is viewed by regulators, practitioners and practitioners and Shari`ahShari`ah scholars scholars

Nature of the contract (Nature of the contract (fiqhfiqh) on which SBI ) on which SBI is basedis based

Key Relationships: 1Key Relationships: 1

Originator Originator Special Purpose Vehicle Special Purpose Vehicle (SPV) (SPV) Holders of Holders of SukukSukuk (HoS) (HoS)

OriginatorOriginator– Role and functionRole and function

Special Purpose VehicleSpecial Purpose Vehicle– Role and functionRole and function

Holders of Holders of SukukSukuk– Role and functionRole and function

Key Relationships: 2Key Relationships: 2

Relationship between the Originator and Relationship between the Originator and Special Purpose VehicleSpecial Purpose Vehicle– AssetsAssets– Duration and timeDuration and time– LeaseLease– Funds from Funds from sukuksukuk– Rental paymentsRental payments– Lease backLease back– TitleTitle

Key Relationships: 3Key Relationships: 3

Relationship between HoS and SPVRelationship between HoS and SPV– Nature of this relationshipNature of this relationship– Issuing Issuing sukuksukuk– Funds generated from the Funds generated from the sukuksukuk– Payments to HoSPayments to HoS

Relationship between HoS and OriginatorRelationship between HoS and Originator– Nature of the relationshipNature of the relationship

Basic Principles and Interpretation: Basic Principles and Interpretation: Unchangeable? -1Unchangeable? -1

To be emphasisedTo be emphasised– Assets: typeAssets: type– Ownership: type & degreeOwnership: type & degree– Contractual formContractual form– Key relationships: direct/indirectKey relationships: direct/indirect

Basic Principles and Interpretation: Basic Principles and Interpretation: Unchangeable? -2Unchangeable? -2

To be avoidedTo be avoidedRibaRiba– Idealistic definitionIdealistic definition– Pragmatic definitionPragmatic definition– Ultra pragmatic definitionUltra pragmatic definition

MaysirMaysir– Idealistic definitionIdealistic definition– Pragmatic definitionPragmatic definition– Ultra pragmatic definitionUltra pragmatic definition

GhararGharar– Idealistic definitionIdealistic definition– Pragmatic definitionPragmatic definition– Ultra pragmatic definitionUltra pragmatic definition

Principles and ImmutabilityPrinciples and Immutability

Text-based?Text-based?

Ijtihad/Ijtihad/Context based?Context based?

Degree of mutability and immutabilityDegree of mutability and immutability

Trend that is at the forefront todayTrend that is at the forefront today– Key thinkers & their argumentsKey thinkers & their arguments– Key practitioners & their argumentsKey practitioners & their arguments

Pragmatic AdjustmentsPragmatic Adjustments

Nature of ownership:Nature of ownership:– Originator-SPVOriginator-SPV– SPV-HoSSPV-HoS

SPV as an intermediarySPV as an intermediaryDegree of ownership of HoS in the Degree of ownership of HoS in the underlying assetsunderlying assetsPredetermination of the value of sale of Predetermination of the value of sale of assets back to the originator (from SPV)assets back to the originator (from SPV)Rate of return and interest rateRate of return and interest rate

ChallengesChallenges

Differentiation between ‘bonds’ and Differentiation between ‘bonds’ and sukuksukuk

Islamicity of the products offered and Islamicity of the products offered and degree of acceptabilitydegree of acceptability

Idealistic and ultra-pragmatic constraintsIdealistic and ultra-pragmatic constraints

Triumph of pragmatic trend?Triumph of pragmatic trend?

Limits of Limits of ijtihadijtihad??

Where to from here?Where to from here?