Understanding Islamic Finance - Doha Academy of Tertiary Studies

Sukuk and Securitization 399— if the Mudarabah capital is still in the form of money before the operation of thespecific project, the trading of MS will be like the exchange of money for money andit must satisfy the rules of Bai‘ al Sarf; 11— if the Mudarabah capital is in the form of debt, it must be based on the principles ofdebt trading in Islamic jurisprudence;— if the capital is in the form of a combination of cash, receivables, goods, real assetsand benefits, trade must be based on the market price evolved by mutual consent.4. The manager/SPV who receives the funds collected from the subscribers to MS can alsoinvest his own funds. He will get a profit for his capital contribution in addition to hisshare in the profit as Mudarib.5. Neither prospectus nor MS should contain a guarantee, from the issuer or the managerof the fund, for the capital or a fixed profit, or a profit based on any percentage of thecapital. Accordingly, (i) the prospectus, or the MS issued pursuant to it, may not stipulatepayment of a specific amount to the MS holder, (ii) profit is to be divided, as determinedby applying the rules of Sharī´ah; that is, an amount in excess of the capital, and notthe revenue or the yield, and (iii) the Profit and Loss Account of the project must bepublished and disseminated to MS holders.6. It is permissible to create reserves for contingencies, such as loss of capital, by deductingfrom the profit a certain percentage in each accounting period.7. The prospectus can also contain a promise made by a third party, totally unrelated to theparties to the contract, in terms of legal entity or financial status, to donate a specific sum,without any counter benefit, to meet losses in a given project, provided such commitmentis independent of the Mudarabah contract. However, it is not permissible for the issuerto guarantee the capital of the Mudarabah. 12IFIs can offer Mudarabah Sukuk or certificates to the investors who would subscribe andparticipate in the investment transactions. The funds mobilized would be the variable capital(class B share) of any bank to be marketed regionally through the selling of the issuedMudarabah Sukuk.Musharakah SukukMusharakah is a mode which can serve as a basis for securitization easily, especially inthe case of big projects where huge amounts are required. Every subscriber is given aMusharakah certificate, which represents his proportionate ownership in the assets of theproject. These are certificates of equal value issued for mobilizing funds to be used onthe basis of partnership, so that their holders become owners of the relevant project orthe asset as per their respective shares that are part of their asset portfolios. MusharakahSukuk can be issued as redeemable certificates by or to the corporate sector or to individualsfor their rehabilitation/employment, for the purchase of automobiles for their commercialuse or for the establishment of high-standard clinics, hospitals, factories, trading centres,endowments, etc.11 Bai‘ al Sarf refers to the exchange of gold, silver, monetary values/receivables or currencies; this has to be equal for equal andsimultaneous if the items of exchange are homogeneous, like gold for gold or US Dollar for US Dollar; and simultaneous if theitems being exchanged are heterogeneous, e.g. gold for silver or Pound for Dollar.12 Council of the Islamic Fiqh Academy, 2000, pp. 61–66.