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 1
Keynote Address at the 3
rd 
USM-ISDEV International Islamic Management Conference on Islamic Capital Market, Organised by Centre for Islamic Management Studies University Sains Malaysia; 28 
th
& 29
th
October 2009, USM, Penang.
Challenges of Realizing
 
 Maqasid al-Shariah
(Objectives of 
 Shariah
) in IslamicCapital Market: Special Focus on Equity-Based Sukuk 
Assoc. Prof. Dr. Asyraf Wajdi Dusuki
∗
 
 Abstract  Islamic Capital Market is an important component of the overall Islamic Financial System especially in providing an element of liquidity to the otherwise illiquid assets. Like its conventional counterpart, Islamic capital markets complement the investment role of the Islamic banking sector in raising funds for long-term investment. Theselong-term investments are facilitated through various Shariah contracts and instruments ensuring efficient mobilization of resources and their optimal allocation.One of the most popular instruments used today in Islamic Capital Market is Sukuk.Various structures of Sukuk based on Ijarah, Musharakah, Mudharabah and hybrid  forms have evolved. However these innovations have invoked many Shariah issuesand controversies. This paper argues that some innovations which try to achieve the same economic outcome like conventional instruments distort the vision of Islamiceconomics based on justice and equitability. These visions are deeply inscribed in theobjectives of Shariah, also known as Maqasid al-Shariah. This distortion stems fromthe restricted view of understanding Shariah, by only focusing on the legal forms of acontract rather than the substance especially when structuring a financial product.The overemphasis on form over substance lead to potential abuse of Shariah principles in justifying certain contracts which in fact contradictory to the Shariahtext and ultimately undermining the higher objectives of Shariah. In the final analysis,the paper concludes that the substance of a contract that has greater implications tothe realisation of Maqasid al-Shariah should be equally looked into. Otherwise, Islamic finance are just appeared as an exercise of semantics; their functions and operations are really no different from conventional banks, except in their use of euphemisms to disguise interest and circumvent the many Shariah prohibitions.
∗
Assoc. Prof. Dr Asyraf Wajdi Dusuki is currently the Head of Research Affairs, International
Shariah
 Research Academy for Islamic Finance (ISRA). His email addressasyraf@isra.my.
 
 2
INTRODUCTION
Over the past decade or so Islamic financial sector has grown and gained strength bythe creation of various support and infrastructure institutions, and expanded from being a banking-based industry to more wider areas incorporating capital market- based products and services. Indeed Islamic capital market like conventionalcounterpart is an important component of the overall Islamic financial system. Itfacilitates the transfer of investible funds from economic agents in financial surplus tothose requiring funds (Ali, 2008). In other words, the Islamic capital market providesan element of liquidity to the otherwise illiquid assets. This is achieved by selling awide array of products ranging from
Shariah
-compliant securities to bond-likestructures known as Sukuk.Perhaps one of the most notable achievements of Islamic capital market is in thegrowth of sukuk market around the globe. The increase popularity of sukuk in recentyears stems from the need of sovereigns and corporate to tap funds from the Islamiccapital markets through a sukuk issuance. However the tools used to develop andstructure the sukuk must comply with
Shariah
values and principles, distinguishing itfrom others. Indeed, extant literature proclaims that Islamic financial system differssignificantly from conventional system, not only in the ways it functions, but above allthe values which guide its whole operation and outlook. The values which are prevailed within the ambit of 
Shariah
, are expressed not only in the minutiae of itstransactions but in the breadth of its role in realizing the
Maqasid al-Shariah
 (objectives of 
Shariah
).Indeed,
Maqasid al-Shariah
reflects the holistic view of Islam which has to be lookedat as a whole not in parts as Islam is a complete and integrated code of life and its goalencompasses the whole life, individual and society; in this world and the hereafter (Dusuki & Abozaid, 2007). Hence, a deep understanding of 
Maqasid al-Shariah
 entails intense commitment of every individuals and organisations to justice, brotherhood and social welfare. This will inevitably lead to a society whereby every
 
 3member will cooperate with each other and even compete constructively, as success inlife is to obtain the ultimate happiness (
 falah
). Thus mere maximisation of profitscannot, therefore, be sufficient goal of a Muslim society. Maximisation of output must be accompanied by efforts directed to ensure spiritual health at the inner core of human consciousness and justice and fair play at all levels of human interaction. Onlydevelopment of this kind would be in conformity with the
Maqasid al-Shariah
 (Chapra, 2000a).Despite progress in the improvements and introduction of an enabling Islamic capitalmarket environment through various
Shariah
-compliant product innovations likesukuk, some structures which attempt to achieve the same economic outcome likeconventional bond distort the
Maqasid al-Shariah
. This distortion stems from therestricted view of understanding
Shariah
, by only focusing on the legal forms of acontract rather than the substance especially when structuring a financial product. Theoveremphasis on form over substance lead to potential abuse of 
Shariah
principles in justifying certain contracts which in fact contradictory to the
Shariah
text andultimately undermining the higher objectives of 
Shariah
.This paper aims at analysing the challenges of realising
Maqasid al-Shariah
in theIslamic capital market, focusing on sukuk instrument. In particular, the paper deliberates on the application of one of the most popular sukuk structure, namely,equity-based sukuk in the light of 
Maqasid al-Shariah
. For that reason, the concept of 
Maqasid al-Shariah
will be first delineated in details so as to shed lights on itsapplication to the modern day’s practice of sukuk.Following this brief introduction, sections will, in order, deliberate on the objectives of 
Shariah
(
Maqasid al-Shariah
); evaluate the application of the
Shariah
tools especiallywith respect to
Maqasid al-Shariah
and
maslahah
in Islamic finance; discuss the polemics of equity-based sukuk structures particularly the use of credit enhancementmechanisms to replicate fixed-income bond characters; analyse how debt-resemblance
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