Guarantees in Ṣukūk between Sharīʿah Objectives and Contract Conditions

Abstract

Guarantees offered for ṣukūk in Islamic finance have become a problematic issue of discussion. From the authors’ perspective, the issue should be approached from two aspects: one considering the required conditions for the validity of contracts and the other considering the Sharīʿah objectives. This research aims to emphasize the necessity of considering the objectives of contracts from a Sharīʿah perspective before judging their validity; particularly with regard to guaranteed ṣukūk. To achieve this goal, the research employs two methods: one descriptive and the other analytical as well as critical. The research has concluded that it is not permissible to stipulate holding the ṣukūk issuer liable neither for the ṣukūk nominal values nor for a predetermined amount of profit; that the idea of holding the ṣukūk issuer responsible based on considering him a joint muḍārib is not founded on solid evidence; that it is not permissible for the muḍārib, partner, or wakīl to be committed to give loan to ṣukūk holders when the actual return for ṣukūk is less than expected; that, in some of their applications, ṣukūk based on lease ending with ownership involve the impermissible ʿīnah transaction; that guarantees in ṣukūk contradict Sharīʿah rules when the issuer undertakes to purchase the ṣukūk assets at their nominal values at the end of the muḍārabah, mushārakah, or wakālah; and that the criteria to assess Islamic ṣukūk on the basis of Sharīʿah objectives can be divided into: criteria related to the motive, criteria related to the contract structure, and criteria for the outcomes of implementing the product.

Keywords: ṣukūk, guarantee, objectives, validity, securitization

JEL Classification: D63, G210, K4, P43