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Riba, Ijtihad and Shari`ah Provisions on Sukuk

Riba, Ijtihad and Shari`ah Provisions on Sukuk. Prof Abdullah Saeed University of Melbourne Australia. What this Presentation is about. The tension that exists between three trends of thought seen in the debates on Islamic finance today with particular reference to sukuk.

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Riba, Ijtihad and Shari`ah Provisions on Sukuk

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  1. Riba, Ijtihad and Shari`ah Provisions on Sukuk Prof Abdullah Saeed University of Melbourne Australia

  2. What this Presentation is about • The tension that exists between three trends of thought seen in the debates on Islamic finance today with particular reference to sukuk. • Exploration of the issue through a closer look at one particular type of sukuk and the relationships involved. • Asking some fundamental questions about the limits of ijtihad as far as sukuk are concerned.

  3. What this Presentation is not • A history of the development of the idea of sukuk and its contemporary forms • About the technical details of sukuk and how they are structured • An evaluation of the performance of sukuk • How far sukuk have penetrated in the global market

  4. Sukuk: Brief Oveview • Basic concept of sukuk • Origins • Key characteristics • Sukuk vs bonds

  5. Trends in Islamic Financial Thought re Sukuk • Trends: Continuum [I……..P……UP] • Idealistic [I] • Pragmatic [P] • Ultra-pragmatic [UP] • Mainstream thought re sukuk • Pragmatic • Key characteristics of this pragmatism

  6. Relationship between Debates on Riba and those on Sukuk • Riba • Idealistic • Pragmatic • Ultra-pragmatic • Comparison between debates on riba and on sukuk • Approaches • Text vs context • Ijtihad vs taqlid

  7. Sukuk and Fiqh • Conceptualisation of sukuk based on fiqh principles and contracts • Key principles and contracts: overview

  8. Sukuk: Types • AAOIFI and its recognition of a range of types • Brief overview • Focus: Least controversial type of sukuk: • Sukuk based on Ijarah (SBI)

  9. Example: Sukuk based on Ijarah (SBI) • How it is viewed by regulators, practitioners and Shari`ah scholars • Nature of the contract (fiqh) on which SBI is based

  10. Key Relationships: 1 • Originator   Special Purpose Vehicle (SPV)   Holders of Sukuk (HoS) • Originator • Role and function • Special Purpose Vehicle • Role and function • Holders of Sukuk • Role and function

  11. Key Relationships: 2 • Relationship between the Originator and Special Purpose Vehicle • Assets • Duration and time • Lease • Funds from sukuk • Rental payments • Lease back • Title

  12. Key Relationships: 3 • Relationship between HoS and SPV • Nature of this relationship • Issuing sukuk • Funds generated from the sukuk • Payments to HoS • Relationship between HoS and Originator • Nature of the relationship

  13. Basic Principles and Interpretation: Unchangeable? -1 • To be emphasised • Assets: type • Ownership: type & degree • Contractual form • Key relationships: direct/indirect

  14. Basic Principles and Interpretation: Unchangeable? -2 • To be avoided • Riba • Idealistic definition • Pragmatic definition • Ultra pragmatic definition • Maysir • Idealistic definition • Pragmatic definition • Ultra pragmatic definition • Gharar • Idealistic definition • Pragmatic definition • Ultra pragmatic definition

  15. Principles and Immutability • Text-based? • Ijtihad/Context based? • Degree of mutability and immutability • Trend that is at the forefront today • Key thinkers & their arguments • Key practitioners & their arguments

  16. Pragmatic Adjustments • Nature of ownership: • Originator-SPV • SPV-HoS • SPV as an intermediary • Degree of ownership of HoS in the underlying assets • Predetermination of the value of sale of assets back to the originator (from SPV) • Rate of return and interest rate

  17. Challenges • Differentiation between ‘bonds’ and sukuk • Islamicity of the products offered and degree of acceptability • Idealistic and ultra-pragmatic constraints • Triumph of pragmatic trend? • Limits of ijtihad? • Where to from here?

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