Understanding Islamic Finance - Doha Academy of Tertiary Studies

398 Understanding Islamic FinanceIjarah has great flexibility and a large potential for Sukuk issue, but some of the featuresof Ijarah Sukuk issues or the agreements involved in the process are pointers to differentSharī´ah-related problems. As per Sharī´ah rules, Sukuk holders have to jointly bear the risksof an asset’s price and the ownership-related costs and share its rent by leasing it to any user.As discussed in Chapter 11, due to the possibility of nonpredictable expenses relating to theownership of relevant leased assets and possible defaults, the returns could be quasi-fixedand not absolutely fixed or unmodified when pegged to any benchmark. However, the returnson most of the Sukuk are absolutely fixed or unmodified. This aspect carries systemic riskof non-Sharī´ah-compliance, which nullifies the very basis of the Islamic financial systemand contravenes the investors’ aspiration based on their belief.Sukuk originating from Sudan, Bahrain and other Middle Eastern countries are basedon Shirkah, Ijarah, Salam, Istisna‘a, Istisna‘a-cum-Ijarah or a pool of mixed assets. SuchSukuk are acceptable to almost all of the Islamic scholars and banking experts, subject tothe fulfilment of minimal Sharī´ah essentials associated with underlying contracts.15.3.5 Categories of SukukBelow we discuss various categories of Sukuk.Muqaradah or Mudarabah SukukMudarabah or Muqaradah 10 Sukuk or deeds can be instrumental in enhancing public participationin investment activities in any economy. These are certificates that represent projectsor activities managed on the Mudarabah principle by appointing any of the partners or anyother person as Mudarib for management of the business. As regards the relationship betweenthe parties to the issue, the issuer of Mudarabah certificates is the Mudarib, subscribers arethe owners of the capital and the realized funds are the Mudarabah capital. The certificateholders own the assets of the Mudarabah and the agreed upon share of the profits belongsto the owners of capital and they bear the loss, if any.In terms of the Resolution of the Islamic Fiqh Council of the OIC (fourth session, 1988),the following are the salient features of Mudarabah Sukuk/certificates:1. Mudarabah Sukuk (MS) represent common ownership and entitle their holders to a sharein the specific projects against which the MS have been issued.2. The MS contract is based on the official notice of the issue or the prospectus, which mustprovide all information required by Sharī´ah for a Qirād contract, such as the nature ofcapital, the ratio for profit distribution and other conditions related to the issue, whichmust be compatible with Sharī´ah.3. The MS holder is given the right to transfer the ownership by selling the Sukuk in thesecurities market at his discretion. The market value of Muqaradah Sukuk varies with thebusiness status and anticipated or expected profits of the concerned project. The sale ofMS must follow the rules listed below:10 Muqaradah or Qirād have the same meaning as that of Mudarabah, as explained in Chapter 12 (in the part relating to Mudarabah).