Uniform Framework for Sukuk Al-Ijarah – A Proposed Model for All Madhahib

Journal of Islamic Accounting and Business Research, 8(4), 420-454, 2017

4 Pages Posted: 3 Aug 2017 Last revised: 24 Mar 2021

See all articles by Abdul Rafay

Abdul Rafay

University of Management & Technology (UMT), Pakistan

Ramla Sadiq

University of Management and Technology (UMT), Pakistan - School of Business and Economics

Muhammad Ajmal

University of Management and Technology (UMT), Pakistan

Date Written: August 2, 2017

Abstract

Purpose: Among many problems, a particular problem in developing a uniform global framework for Islamic financial instruments is the existence of different madhahib within Islamic Fiqh. The leading and the most prominent Sunni madhahib that have survived till today are four, the Hanbali, Shafi, Maliki and Hanafi while the most prominent Shia madhab is the Jafari madhab. This research aims to discuss the urgent need to develop a sound and robust universal framework that would prove helpful in creating uniform acceptability of Islamic financial instruments.

Design/methodology/approach: The research approach was descriptive and exploratory in nature. Secondary resources were used except for a semi structured interview with a Shariah scholar with the justification that his knowledge and experience regarding the subject matter may prove helpful. The methodology included a systematic review of already issued Sukuk by various madhahib. Compared to a simple narrative review of a few case studies regarding Sukuk, this methodology has a benefit to provide the reader the power to assess the review and even replicate it. The results of our systematic review are summarized in the form of tables.

Findings: Ingredients were determined that would help make a truly global Sukuk security; a model acceptable to all madhahib of Islamic Fiqh. These ingredients include Rentals, relationship between SPV and originator, Transference to SPV, Sukuk Structure, Guarantee, Liquidity, Listing and Tradability, Convertibility, Subordination and Post Ijara price. Moreover, specific steps were also analyzed that must be taken to issue such type of Sukuk al-Ijarah.

Research limitations: This study is focused only a type of Islamic financial instruments i.e. Sukuk whose underlying was Ijarah based contracts. This is due to lesser global acceptability for other Islamic financial instruments including other forms of Sukuk. Based on the nature of study, purposive/judgmental sampling was done. The sample population was 40 Sukuk (9 each from Hanafi, Shafi and Maliki madhahib, 5 each from Hanbali and Jafari madhahib and 3 from Non-Muslim zones). Some Sukuk were dropped due to non-availability of enough data and to keep some semblance between the impact of the madhab on financial world and the data.

Practical implications: For practitioners and regulators, on the basis of the given recommendations, it would be possible to create a standardized product, acceptable for all madhahib of Islamic Fiqh. This standardization will lead to a unified platform that can attract a larger investor pool as well as better integration. For practical purposes, the proposed model of Sukuk al-Ijarah can be replicated for other Islamic financial instruments for global acceptability.

Social Implications: For an Islamic society, the expansion of Islamic economic system depends principally on unity. So integration is critical and also essential for the success of any Islamic financial instrument. When the society will move away from Riba and its associated evil, the society will move in a positive direction, while still making profits. The proposed model may also be utilized for socially responsible initiatives like protection of natural resources, advancement of renewable energy, economic development and rehabilitation to name a few.

Originality: Previous studies were silent on the development of comprehensive frameworks acceptable to all madhahib of Islamic Fiqh. This research study is the first study of its kind and is the first step towards integration as it would try to suggest a global framework for Sukuk al-Ijarah that can be acceptable by the followers of any madhab of Islamic Fiqh.

Keywords: Islamic Financial Instruments, Islamic Fiqh, Madhahib, Regulatory Standards, Sukuk al-Ijarah, Uniform Framework.

JEL Classification: G18, G28, G21, K12, M48, N45, O53

Suggested Citation

Rafay, Abdul and Sadiq, Ramla and Ajmal, Muhammad, Uniform Framework for Sukuk Al-Ijarah – A Proposed Model for All Madhahib (August 2, 2017). Journal of Islamic Accounting and Business Research, 8(4), 420-454, 2017, Available at SSRN: https://ssrn.com/abstract=3012480

Abdul Rafay (Contact Author)

University of Management & Technology (UMT), Pakistan ( email )

C-II
Johar Town
Lahore, Punjab 54770
Pakistan
924235212801-10 (Phone)

HOME PAGE: http://www.umt.edu.pk

Ramla Sadiq

University of Management and Technology (UMT), Pakistan - School of Business and Economics ( email )

Johar Town - Phase 1
Lahore, 54000
Pakistan

Muhammad Ajmal

University of Management and Technology (UMT), Pakistan ( email )

C-II
Lahore, Punjab 54770
Pakistan

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