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DFM Standard For Issuing, Acquiring and Trading Sukuk
6th January – 28th February 2013 DFM invites you to comment on the draft “DFM Standard for Issuing, Acquiring and Trading Sukuk” Email your comments to: email@example.com before 28th February 2013
DFM Standard For Issuing, Acquiring and Trading Sukuk
introduction .................................................................................................................................... 3 definitions....................................................................................................................................... 5 WHAT IS SUKUK? ........................................................................................................................... 5 SUKUK ASSETS .............................................................................................................................. 5 SUKUK UNDERLYING CONTRACTS ................................................................................................... 6 THE FORBIDDEN FINANCIAL INSTRUMENTS....................................................................................... 7 THE PARTIES TO SUKUK ................................................................................................................. 8 REDEMPTION & TRADING OF SUKUK ................................................................................................ 9 TYPES OF SUKUK ........................................................................................................................... 9 general principles and shari’a parameters ............................................................................... 11 THE GENERAL PRINCIPLES FOR ISSUANCE OF SUKUK ..................................................................... 11 SHARI’A RULES FOR THE ISSUANCE OF SUKUK............................................................................... 13 a. the special purpose vehicle ...................................................................................... 13 b. stipulating an incentive for the sukuk manager ..................................................... 14 c. giving prizes on investment sukuk .......................................................................... 14 shari’a rules of sukuk .................................................................................................................. 15 IJARAH SUKUK ......................................................................................................................... 15 SUKUK OF OWNERSHIP OF LEASED OR TO BE LEASED ASSETS .................................................... 16 SUKUK OF USUFRUCTS ............................................................................................................. 17 SUKUK OF OWNERSHIP OF USUFRUCTS OF SPECIFIED ASSETS .................................................... 18 sukuk of human labor (service ijarah sukuk) ................................................................... 19 PARTICIPATION SUKUK ............................................................................................................. 20 mudaraba sukuk: general rules ......................................................................................... 20 sukuk of musharaka in profit ............................................................................................. 21 FINANCE SUKUK ....................................................................................................................... 24 a. salam sukuk ................................................................................................................ 24 b. murabaha and bay’ bethaman ajel sukuk ................................................................ 24 c. istisna’ sukuk.............................................................................................................. 24 d. funds sukuk ................................................................................................................ 24 sukuk guarantees ........................................................................................................................ 26 GENERAL RULES .......................................................................................................................... 26 THE PROMISE TO PURCHASE ......................................................................................................... 26 GUARANTEES IN INVESTMENT SUKUK ............................................................................................ 27 THE OBLIGATION TO LIQUIDATE THE SUKUK ASSETS AND REFUND THE CAPITAL .............................. 27 UNDERTAKING OF PURCHASE AT PRICE EQUIVALENT TO THE REMAINING UNPAID FIXED RENTAL (THE NON-MANAGING LESSEE’S UNDERTAKING) .................................................................................... 27 LENDING UNDERTAKING BY THE INVESTMENT SUKUK MANAGER ..................................................... 27 LENDING UNDERTAKING BY THE INVESTMENT SUKUK MANAGER ..................................................... 27 GUARANTEE OF A CERTAIN DETERMINED PROFIT FOR THE SUKUK HOLDERS .................................... 28
keeping in mind their Shari’a origin which is to be duly observed through the use of the mechanisms. In all cases." A valid question may arise on the difference between shares and Sukuk. immediate money is not offered to finance-seekers in exchange for future money. procedures and terminologies which were not contradicted to Shari’a rules. Restricted and Unrestricted Mudaraba. then investing the same through Shari’a compliant financing and investment contracts. This way. 3 . Acquiring and Trading Sukuk Introduction All praise is due to Allah. rules and parameters endorsed by Islamic law. and they remain in use as long as the company itself remains in existence. It can be said in this regard that shares are usually confined to being common rights in the ownership of the assets of a specific legal company. and His blessing and mercy be upon his last Messenger. Bay’ Bithaman Ajil. Some of the other challenges relate to the absence of a new Shari’a standard for acquiring of and trading in Sukuk. This standard aims at setting the rules and parameters with respect to the issuance and tradability of the Sukuk. such as the absence of an integrated secondary market due to the relatively limited number of Sukuk issuances in comparison with the market of conventional financial instruments. Sukuk become a genuine Islamic financial instrument as dictated by their Shari’a origins. financial instruments had started dealing with shares at first. When Sukuk first appeared in the beginning of this century. usufructs and financial rights. Diminishing Musharaka. operating and financial lease (Ijara Muntahia Bittamlik). Restricted and unrestricted Investment Wakala. One of the most important features of Islamic finance is that it is based on collecting funds from their owners through Mudaraba or Wakala Bilistithmar1. which may be simple or compound. and they have drawn the attention of both the Islamic and international markets. till the Day of Judgment. Their issuing has also been closely monitored by Shari’a bodies to ensure the compliance of their structure and execution with Shari’a rules. there are certain challenges facing them. Lord of the Worlds. his companions and upon all who rightly follow them. although they represent common rights in the ownership of assets. they are issued for a specified period after which they can be redeemed. rather the dealings are conducted on assets. Istisna’ and Salam Sale. Murabaha for the purchase order. they were considered a substitute to bonds and for that reason Sukuk borrowed from bonds some mechanisms.DFM Standard For Issuing. In fact. Sukuk. that broadly facilitates the 1 Other Islamic financial modes include: Musharaka. his family. they are not necessarily limited to the assets of a specific company. For instance. on the other hand. Sukuk have made quantum leaps in terms of variety. volume and revenue. besides. but the beginning of this century witnessed dealings in new financial instruments called "Sukuk. Considering the novelty of Sukuk in the market.
and then it prepared this new standard. which are better alternative to conventional bonds. This new standard. But it improved again to the extent that the value of issued Sukuk in 2011 was worth $70bn. In order to prepare this standard.DFM Standard For Issuing. The development of the Sukuk sector however calls for sincere efforts to be exerted by the Muslim scholars and whoever is interested in the Islamic financial thought. 4 . after which it shrank in 2008 due to the decline in economic growth. we should expect a prosperous future for Sukuk in the coming years if we are able to offer the appropriate standard which bridges all gaps to embrace the expected improvement in the economic situations. and so enable these communities to benefit from the fairness of Islamic finance and its efficiency in achieving constant and balanced growth. Thus. which assures Sukuk holders and enables Islamic finance industry to achieve more progress in the future. aims at subjecting Sukuk to the principles and rules of Shari’a. in order to innovate and come up with new Islamic financing instruments that serve both the Islamic and world communities. opens the doors to more useful financial innovations and creates potentials for Sukuk investors so they can own and trade in Sukuk with full comfort and assurance that their investment is in compliance with Shari’a. Investment Sukuk. Acquiring and Trading Sukuk issuance of Sukuk. thus making Sukuk an excellent instrument for treasury operations and trading. Hence the interest of Dubai Financial Market was towards the establishment of its own standard for acquiring of and trading in Sukuk. Just Allah’s pleasure is our ultimate goal. which was prepared by the Shari’a and Fatwa Supervisory Board. the Shari’a and Fatwa Supervisory Board of Dubai Financial Market has reviewed and studied the existing Shari’a Sukuk standards and the relevant fatwas that were issued by the reliable fatwa bodies. It is also expected that new companies will play valuable roles in this market and improve its efficiency. As we follow the current situation of the Islamic Sukuk market. are constantly and largely evolving for the use of investors who seek Shari’a compliant investment products. we notice that the issuance of Sukuk had witnessed considerable development till 2007. and His Favor only destines the success.
a deed or security2. Acquiring and Trading Sukuk Definitions What is Sukuk? 1. based on a Shari’a contract with all of its rules. the profit and the liquidation value of the assets they represent. and the rights and obligations of all contractual parties are well defined in the prospectus. Sukuk assets Sukuk assets are what the ‘Sakk’ represents of tangible assets. issued with equal value as evidence of ownership for their holders in the underlying assets.3. their issuance shall strictly be on the basis of one of the Shari’a contracts. Sukuk do not represent interest-bearing loans from their holders to their issuer. They represent undivided shares in ownership of assets: tangible assets. 3 It is one of the common mistakes to term Sakk a bond. are prohibited Riba-bearing financial instruments. usufructs. but subject to certain conditions (the Sukuk assets) upon issuance and after subscription. treasury bills. money.g. nominal Sukuk) or by their bearers. In case of loss.2. bond and its likes. money. Moreover. Sukuk have the following characteristics: 1. Sukuk are issued for a limited period. unlike bonds. The holder shares the proportion of the Sukuk he holds. 5 . however.6. 2 From the word ‘Sakk” were developed later the English word (check) and the French word (cheque) and their likes. It represents property rights in assets that are either existing at the time of issuance or to be acquired with the issuance proceeds.1. 1. 1. 1. Sukuk holders share the profits and losses of the Sukuk underlying assets. They are issued. e. They are either nominal or for-the-bearer certificates. debts. This amount comprises the money paid to purchase the bond and the interest calculated on term. On the contrary. owned either by a defined person (whose name appears thereon. They shall not be deemed as debt for their owners on their issuer at issuance time. usufructs. and they can be redeemed during or at the end of this period. lexically means a certificate. services.5. debts. conditions and legal effects. Sukuk represent undivided shares in the ownership of assets. services or a mixture of some or all of these kinds but with certain conditions. Sukuk ability for redemption and trading is subject to the conditions pertaining to the tradability of the assets they represent. A bond represents a financial right in a certain amount of money that is payable in the future.4. In Islamic Finance terminology ‘Sukuk’ refers to certificates or legal instruments (securities) of equal value. and they entitle their holders to the return generated from the investment of their issuance proceeds. he is also liable for loss to the proportion of the Sukuk he holds based on the Fiqh maxim “"liability is an obligation accompanying gain” 1. financial rights or a mixture of some or all of these kinds. Sukuk: Plural of ‘Sakk’. Therefore.3 1. Sukuk are tradable instruments so long as they do not represent debt or money alone.DFM Standard For Issuing.
Investment contracts do not result in creation of debt liability upon any of the contractors as in Musharaka. (3) In a Partnership: An agreement between two or more parties to combine their assets for the purpose of making profit. one may guarantee the other. (2) Contractual partnership: This partnership is formed by the contractual agreement of partners –whose number may increase over time. When they sell the assets they repay the debt and share the balance as profit in proportion to their debt liability. It is formed when two or more jointly own something by virtue of inheritance. like the creation of monetary debt in Murabaha. (6) Wojoh Partnership (Partnership in creditworthiness or reputation): A bilateral agreement between two or more reputable parties to conclude a partnership without a capital so they buy assets on credit on the basis of their reputation for the purpose of making profit. It may be formed compulsory. or it may be initiated by the partners as when they jointly buy something or accept a gift. without it being intended by the partners as when two inherit something. It is based on Wakala and Kafala combined. (5) Abdan Partnership (vocational or professional partnership): An agreement between two or more parties to provide services pertaining to a profession or a vocation and to share the profit according to an agreed-upon ratio. Technically. Mudaraba and Wakala bilistithmar (agency in investment). or goods as in Salam and Istisna’. It is of four types. (4) Mufawada Partnership: Mufawada literally means equality. Profit sharing is as per agreement and liability for loss is as per their shares in the capital. Financing contracts are the ones that lead to the creation of debt liability towards one of the contractors. Musharaka4 4 Partnerships: (1) Partnership in ownership is based on Wakala and Kafala between partners. can be divided into financing contracts and investment contracts. Contracts.DFM Standard For Issuing. Sukuk underlying contracts include: 1. donation or a bequest. 6 . it refers to a partnership in which the parties are equal in the funds contributed by them. Conversely. however. Investment contracts: 1. The partners in this partnership are like foreigners so that no party has the authority to act on behalf of the other unless with delegation of power. Acquiring and Trading Sukuk Sukuk underlying contracts Sukuk are issued on the basis of a Shari’a contract that has fulfilled its elements and conditions and produced its legal effects. however.1. and it is derived from Tafweed which means authorization to act. bequest or other means.on the basis of Wakala or Wakala and Kafala combined. gift. Sukuk contracts are not limited in number since permissibility is the original ruling in initiating contracts and making conditions so that it is the claim of prohibition that needs to be supported with evidence. their right to act and their liability and profit.
1.2. The stocks of companies whose primary activity is permissible but: 3. or 3.3. then in this case the prospectus will be considered as an offer and the subscription becomes an acceptance. 3. Ijarahh (The two types of Ijarahh) 3. Istisna’ 2. All these are Reba-bearing financial instruments and thus they are forbidden to deal with. the methodology of Shari’a auditing.1. yet the name (Islamic bonds) itself is not accurate in economic sense.4. terming Sukuk that have fulfilled all Shari’a conditions as ‘Islamic bonds’ does not render them prohibited. Bonds include government bonds. Its income generated from unlawful sources exceeds 10% of its total income. Terming bonds as ‘investment certificates’ does not change the prohibition of their acquisition and trading. if it is expressly stated in the prospectus that it is an offer. 3.5. and it comprises both the amount paid in the purchase of the bond and the interest calculated on its term. 2.2 However. 7 . while the issuer’s approval of the subscription represents an acceptance.5. Mudaraba Wakala Bilistethmar Muzara’a Mugharasa Musaqah 2. 1.4. the controls to protect the interests of the subscribers and so on and so forth. corporate bonds (Loan instruments) and all financial instruments that are based on lending with interest.1 The act of subscription represents an offer. For their prohibition consideration should be given to their essence and nature and not to their terminology. Murabaha 2. the assets manager. treasury bills. The stocks of companies whose primary activity is prohibited. It includes all information about the Sukuk issuer. Financing contracts: 2.2. the assets in which the proceeds will be invested. Salam 2. the Fatwa and Shari’a Supervisory Board.3. A bond thus represents a financial right for its bearer (the creditor). Bay’ Bethaman Ajel (Musawama sale) 2.DFM Standard For Issuing. 1.1. Its amount is guaranteed by the bond issuer to be repaid at a specific future time. Acquiring and Trading Sukuk 1. Similarly. the use of the Sukuk proceeds.6.2. Bonds: Bond is a certificate or a deed (security) that represents a guaranteed interest-bearing debt owed by its issuer (the debtor) to its bearer. The forbidden financial instruments 1. 3. The prospectus: Sukuk prospectus represents an invitation from the issuer to the subscribers. Its interest based lending or borrowing exceeds 30% of its total assets. 1.
The issuer of Musharaka. The Sukuk holders are respectively the partners. The issuer of the Sukuk could be a special purpose vehicle (SPV). The issuer of the Sukuk could be the same seller of the leased asset or the asset to be leased. is the seller of these assets. Mudaraba or Investment Agency Sukuk is the partner. 5. whose Shari’a conditions have not been observed. All kinds of financial derivatives. The issuer of Murabaha Sukuk is the seller of the Murabaha asset. Securities that are based on contracts that have not fulfilled their Shari’a elements and conditions. 4. 2. capital providers or the principals. 8. The issuer of the Sukuk 1. the sale whose two counter values have been both postponed. usufructs (the lessor) or services. The subscribers are the cultivators on the basis of a Muzara’a contract. 6. the seller (lessor) of the usufruct of the asset in a lease contract or the seller of the service in a service lease contract. while the Sukuk holders are the buyers of this asset and the fund mobilized through the subscription is the purchase price of this asset. The issuer may delegate for Issuance of the Sukuk an intermediary institution (special purpose vehicle. Sukuk issuer could also be the seller in a Salam contract. The parties to Sukuk A. The issuer of Muzara’a Sukuk: 8. forward currency exchanges and fictitious sales of Murabaha. the buyer in an Istisna’ contact where the Sukuk holders are the manufacturer or the buyer in a Murabaha contract where the Sukuk holders are the seller. The Sukuk holders are the buyers of these Sukuk assets. or also the Sukuk representing ownership of the usufruct of the assets or services. Acquiring and Trading Sukuk 4. The funds mobilized through the subscription are the Sukuk holders’ share in the Musharaka capital. which is established as agent and trust in favor of the Sukuk holders. a government or a financial institution. or that involved prohibited elements or contracts like the buy-back sale. In this case the SPV is the party that gives the offer while the Sukuk holder is the one who accepts that offer. while the Sukuk holders are the buyers of this asset and the fund mobilized through the subscription is the purchase price of this manufactured asset. The issuer of Muzara’a Sukuk could be the owner of the land (the principal owner or the owner of the usufruct of the land). 8 . sale of debts for less than their nominal value. The issuer of Istisna’ Sukuk is the seller of the manufactured asset. while the funds mobilized through the subscription are the purchase price of these assets. the Mudareb or the investment agent respectively. 3. SPV). Sukuk issuer could be a firm. The realized fund is the cultivation cost. the Mudaraba capital or the entrusted capital of the investment agency. 7. 5.DFM Standard For Issuing. The issuer of the Sukuk is the party who uses the realized fund.1. The issuer of the Sukuk representing ownership of the leased assets (already leased or to be leased later).
Sukuk Manager The Sukuk manage may be: 1.2. A Mudareb managing the Sukuk holders’ assets against a share in the realized profit. An investment agent managing the Sukuk holders’ assets against a determined fee that could take the form of fixed amount or a percentage in the assets value.1. 3. SPV. or selling the Sukuk assets to the Sukuk issuer or someone else. B. They are the owners of the Sukuk assets. This ownership grants these Sukuk holders the right in owning the funds realized from the sale of these assets or the sale of their usufructs. Acquiring and Trading Sukuk 8. Sukuk of usufructs: 2. Sukuk holders 1. C. 8. 3. Types of Sukuk 1. 2. Holding the title to the Sukuk assets by the Sukuk holders may be direct or through an agent or a trustee. 2. The issuer of these Sukuk could also be the cultivator (the worker).3.DFM Standard For Issuing.1. These Sukuk represent for their holders a common share in the ownership of assets that are either ascertained or established as a liability by description. Sukuk of ownership of tangible assets: 1. Trading of Sukuk is the sale of the Sukuk underlying assets to a third party so that he replaces the old Sukuk holder in the ownership of these assets. A managing partner managing the Sukuk holders’ assets against a regular share or a higher share in the profit. Redemption & Trading of Sukuk 1.2. These Sukuk represent for their holders a common share in the ownership of usufructs of ascertained assets (lease of ascertained assets) or assets established as a liability by description (forward lease). then distributing the sale proceeds on the Sukuk holders in proportion to the number of Sukuk held by every one of them.1. 2. the subscribers could be the owners of the land (investors whose subscription amounts are used to buy the land) and the Sukuk holders are entitled to a share of the produce of the land as per agreement. Sukuk of lease of services: 3. with or without an incentive. who may be an individual or a special purpose vehicle. They grant their holders the right in reselling the usufructs they represent through subleasing so that they can claim the rents from the sub-lessees. Redemption of Sukuk means distribution of the Sukuk assets on the Sukuk holders. 2. They hold all varieties of Sukuk certificates. These Sukuk represent for their holders a common share in the ownership of 9 .
Examples of these services include medical and educational services. then after issuance they represent undivided shares in the Mudaraba assets purchased with the capital. The latter occurs when the Sukuk issuer securitizes his share in a Musharaka he previously signed with a third party. Musharaka Sukuk: 5.1.1. These Sukuk grant their holders the right of subleasing the service against a determined fee. whether in person or through what he undertakes to provide of facilities. 5. The underlying contract of these Sukuk is Mudaraba where Sukuk holders provide the Mudaraba capital and the Mudareb invests it in a certain venture or project against a percentage in the return of that investment. 4. Alternatively. As a result they become entitled to the profit according to the agreed-upon profit ratio and also liable for loss in proportion to their share in the Musharaka capital. 10 . The issuer could also be a party willing to set up a certain project on a land he owns so he wishes to issue Musharaka Sukuk in order to help develop this project on the land. while the Mudareb is the other party in this Mudaraba contract. while the Sukuk holders own the remaining share each in proportion to the Sukuk he holds.2. means. Acquiring and Trading Sukuk services that could be either ascertained or established as a liability by description (from a specific or nonspecific service provider). In this case the Sukuk issuer owns a share in the project proportionate to his contribution.2. he may have insufficient capital to finance a project he wants to set up. so he issues Musharaka Sukuk to raise the needed capital. 4.DFM Standard For Issuing.2. The issuer of these Sukuk may also be a special purpose vehicle (SPV). negligence or breach of the Mudaraba contract and conditions. means of transportation. which constitutes the return of these Sukuk. and the underlying asset of this Musharaka is a stand-alone asset or a share in an existing-Musharaka asset. The underlying contract of these Sukuk is Musharaka. The issuer of these Sukuk is the Mudareb. Mudaraba (Muqarada) Sukuk: 4. The holder of these Sukuk has the right to dispose it of or the assets it represent by all legal means. whether for a certain period or a certain work. 3. 5. while the Sukuk holders are the capital providers and the fund realized from issuance of the Sukuk is the Mudaraba capital. and the Sukuk manger manages this share for them. The fund mobilized through subscription is the purchase price of these services.3. The provider of these services commits himself to provide them to others against a determined fee. The Mudareb is not liable for the damage or loss of the Mudaraba assets as long as he is able to prove that such loss or damage has not been the result of a misconduct. which is established as agent and trust in favor of the Sukuk holders. legal or financial consultations and geometric designs. devices or other things. so the Sukuk holders replace him in that share and become its owners. 4. Mudaraba Sukuk represent at issuance undivided shares in the Mudaraba capital. equipment.
Murabaha and Bay’ Bethaman Ajel Sukuk: 7. Sukuk must be issued on the basis of a Shari’a (financing or investment) contract which must fulfill the following: 1.3 Its implementation is meant to meet its Shari’a objective. while the Latin laws do not recognize it so they consider other means to issue Sukuk.1 The pillars and conditions of contracts. and thus Mudaraba is concluded. General Principles And Shari’a Parameters5 The General Principles for Issuance of Sukuk 1. and when assets are purchased with the capital then the certificate represents a share in these assets. Mudaraba capital shall b divided into equal units and certificates of equal value shall be issued against them so that every certificate represents for its holder a share in the capital of the project for whose financing the Sukuk are issued. Nevertheless. it is permitted for the Sakk to be issued by a party like the Mudarib.DFM Standard For Issuing. so he expresses the offer of a Mudaraba whose terms and conditions comply with Shari’a. they are part of the legal system. 11 . It also utilizes the Sukuk issuance realized fund and accepts the offer through the signing of the Sukuk underlying contract. and the acceptance from the Mudarib. and requests from the capital provider to provide the capital.2 Its legal effects and consequences. the Muzari’. and consequently the Sukuk underlying contract is initiated. These Sukuk represent after the purchase of Murabaha asset and prior to its sale undivided shares in that asset. He could be the Mudarib. After procession they represent undivided shares in the selling price of the Salam asset. the seller in Salam.1. Salam Sukuk represent prior to the possession of the Salam asset undivided shares in the ownership of that asset. the Mustasni’ (the buyer in Istisna’).1. The issuer may also be the Sukuk holders through their representative or a special purpose vehicle (SPV) acting as agent and trust in favor of the Sukuk holders. Salam Sukuk: 6. 1. the investment agent. the offer may originate also from the capital provider. the buyer in Murabaha. 1. For example. the very idea of SPV has originated from the British Law. However. 5 The Sakk issuer is the one who utilizes the issuance realized fund. which has become a debt on the buyer. As for the mechanism and the procedures. 7. In either case. the Musaqi or the Mugharis (the farmer in the agricultural partnerships). The issuer may be the one who initiates the offer by virtue of the prospectus so that the subscription of the Sukuk holders is deemed the acceptance to the offer. the managing partner. After its sale. they represent undivided shares in the selling price of the Murabaha asset. Acquiring and Trading Sukuk 6.
7. Acquiring and Trading Sukuk 1. and their title is transferred by registration in a special record or by writing on them the name of every new holder. and not managing the Sukuk assets on a trust basis. The Sukuk funds mobilized through subscription must be used for the same purpose stated in the prospectus in accordance with Shari’a rules and precepts throughout the duration of the investment. 3. and not off the balance sheet. 8. or if some of the Sukuk assets were unlawful. Examples are: 3. major maintenance and taxes.DFM Standard For Issuing. 8.e. 3. managing partner or investment agent) is indebted for the Sukuk sale proceeds to the Sukuk holders.3 When the investment Sukuk documents state that the Sukuk issuer (as Mudareb. Sukuk may be nominal. like insurance premiums. 12 .4 It is free from conditions that contradict its essence and Shari’a objectives. procrastination or refusal of the project or venture manger to follow the Shari’a committee’s instructions or to remedy any violations.1 The sale is genuine. i.2 The Sukuk holders are genuinely liable for the burdens and expenses that are associated with ownership. i. carrying the name of the Sakk holder. This committee shall accordingly submit periodical reports to the Sukuk holders. Issuance. so title is transferred then by virtue of changing hands. and it has the right to summon the Sukuk holders or their representatives to take the appropriate action in case of a flagrant infringement of Shari’a rules.2 When the assets sold to the Sukuk holders in Sukuk of ownership of leased. tangible assets are unsalable according to the official laws. or when they remain as the property of the seller appearing in accounting terms on the balance sheet. or to be leased. 4. The activities: Issuance and trading of Sukuk in not allowed if their issuance realized fund is meant to be used in unlawful activities. and it is not a financial liability upon the Sukuk issuer in return of his use of the Sukuk proceeds.e. Sukuk and ‘Ienah: the mere purchase of the leasable assets (the Sukuk assets) from their owners by the Sukuk holders then leasing them back on Ijarahh Muntahia Bettamleek against fixed and variable rents cannot be deemed as unlawful ‘Ienah should the following be observed: 8. 5. Sukuk may also be for their bearer.1 When the transfer of ownership of assets from the seller in the Sukuk of tangible assets or the Sukuk of usufruct of asset is fictitious. The prospectus and documents of the Sukuk must include a clause to the appointment of a Shari’a committee responsible for supervising and auditing the project or the venture where the Sukuk issuance proceeds are invested. it does not involve real and legal transfer of ownership. 6. 2. trading or redemption of Sukuk must not involve or boil down to the sale of spot money against deferred but more money. 3. The return on the Sukuk must reflect the outcome of Sukuk assets investment. and it transfers both title and liability.
3 The Sukuk holders have the absolute right in the disposal of the Sukuk without any restrictions. because a usufruct of an asset cannot be segregated from the asset itself. 10. 10. while the subject matter of the lease contract corresponds to the incomplete ownership of the usufruct only and not the title. and the lease is not stipulated in the sale contract. and as their agent in directing the Sukuk issuance realized funds towards investing them in what they were issued for.3 Sukuk holders take full responsibility of the leased assets since they are the owners of these assets. This transaction cannot be deemed as a loan with interest on the account that: 10.1 This transaction (the purchase of the leasable assets -the Sukuk assets. The special purpose vehicle cannot be owned by the Sukuk issuer. or in Sukuk of ownership 13 . as well as the incomplete one that involves the usufruct only or the title only.5 The sale and lease contracts are not linked together. Shari’a Rules for the Issuance of Sukuk A. Acquiring and Trading Sukuk 8. It is permissible for the issuance of Sukuk to be handled by a special purpose vehicle acting as the Sukuk holders’ trustee in holding title of the Sukuk assets. who utilizes the realized fund. a sale which includes a stipulation in the very contract to return the sold asset to its original seller upon his repayment of the same price. 8.1 Both title and usufruct are correlated in the sense that leasing an asset after its purchase to the original seller is similar to reselling it back to him. the subject matter of the sale contract corresponds to the complete ownership of both title and usufruct.6 A lapse of no less than one year from the lease of the assets to their title transfer to the lessee. The Special Purpose Vehicle 1.DFM Standard For Issuing. Sukuk and Wafa’ sale and loan with interest: 9. It may also initiate the offer in the Sukuk issuance agreement on behalf of the Sukuk holders. 8. 8. However. 10. either by leasing it to the seller or to a third party.from their owners by the Sukuk holders then leasing them back on Ijarahh Muntahia Bettamleek against fixed and variable rents) cannot be deemed as Wafa’ sale. 2. if this shall result in breach of Shari’a rules. Segregation between the title and the usufruct is feasible in contracts like sale and bequest. like in cases that involve sale of the Sukuk assets by the Sukuk issuer to the SPV as in Sukuk of the ownership of the tangible assets that are meant for leasing. before returning it back to its original seller. 9. hence the transaction will be similar to buying an asset for cash price then selling the same to the original seller for a higher credit price. so that the buyer can benefit from this sale contract by utilizing the sold asset for his own benefit.4 The Sukuk assets are saleable according to the official laws.2 Shari’a recognizes the complete ownership that involves both title and usufruct of the asset.
2. Distribution of prizes is based on pure donation so that prizes are not distributed on regular basis and are not customarily considered as commitment on the Sukuk manager that if he stops giving prizes clients stop buying the Sukuk. It is permitted to state in the prospectus and its documents that the Sukuk manager is entitled to all or part of the profit that exceeds a certain level as an incentive for his good management. which is a kind of gambling. Giving prizes from the fund providers’ profit is not the primary objective of the Sukuk issuance. Acquiring and Trading Sukuk of usufructs. These advance payment shall be offset against the realized incentive upon the maturity of the Sukuk.DFM Standard For Issuing. Stipulating an incentive for the Sukuk manager 1. like when the Mudareb sets up an SPV to initiate on his behalf the offer in Sukuk issuance. It is recommended to link the distribution of prizes to the performance of the Sukuk assets and the realized profit. If the Sukuk issuer owns the SPV. and also to determine the value of the prizes in accordance to the Sukuk manger’s realized share in the profit. in addition to the fees or profit share he is originally entitled to. 2.2 When the value of the prizes is too big to be paid for from the Sukuk manager’s normal fees or profit share so that it would not serve his interest to pay for the prizes unless his fees or profit share was high enough. 14 . The following clues may suggest such an objective: 1. the Mudareb’s profit share has excessively exceeded the market rate then the Mudaraba is deemed fictitious and the prizes distributable to the Sukuk holders are deemed to have been paid for from their own share in the profit and thus. if the price for these prizes is paid from Sukuk manger’s own funds then this is allowed but on the following conditions: 1. Musharaka or Wakala Bilistethmar) prizes to the Sukuk holders. Giving prizes on investment Sukuk It is not permitted to issue Mudaraba. However. 4. The Mudareb’s profit share is commensurate with the market rate for a Mudareb’s profit share. a part of the Sukuk holders’ profit share will have been allocated to only some of the Sukuk holders. If. The Sukuk manager’s incentive is to be worked out for the Sukuk term upon the maturity of the Sukuk. it is permitted to advance to the Sukuk manger some payments on the account of the incentive during the Sukuk terms and prior to their maturity. Musharaka or Wakala Bilistethmar Sukuk where the Mudareb. 1. 3.1 When the Sukuk manager’s fees or profit share is higher than normal market fees or profit share for such manger. However. on certain conditions and from the profit generated from the Sukuk assets (assets of Mudaraba. C. therefore. the managing partner or the investment agent undertakes to offer on lot basis. SPV can be established by the Sukuk issuer to function as his agent when no breach of Shari’a rules is involved. however. B. then the Sukuk issuer will be effectively selling to himself. on the other hand.
after deduction of the Sakk corresponding share in the applicable expenses as outlined in the Ijarahh contract. 5. nor does it represent a debt liability upon a particular party of natural or juristic personality.e. Acquiring and Trading Sukuk Shari’a Rules Of Sukuk Ijarah Sukuk 1. higher or less than the Sakk issuing price. the Sukuk become untradeable. It is permitted to issue and trade in the Sukuk that represent ownership of leased. It is permitted for the Sakk owner to sell the Sakk in the secondary market to any buyer at any agreed-upon price. Being the owners of the usufruct. because they represent then debts liabilities on the new lessees and thus. 7. rather it is a security representing a common share in the ownership of usufruct of an a tangible asset. like a real estate property or a vessel and the likes. Sukuk of ownership of tangible assets and Sukuk of ownership of usufructs of tangible assets are issued on the basis of a valid sale contract that transfers the 15 . their tradability is subject to the rules pertaining to sale of debt. according to the rent payment schedule outlined in the prospectus and the lease contract. The Sakk must also represent ownership in income-generating real tangible leased or leasable assets. this is circumscribed with the issuance of the Sukuk being prior to signing the lease agreements with the new lessees. The Sakk owner is entitled to his share in the return. The objective of Ijarah Sukuk is to convert the Ijarah underlying usufruct into securities (Sukuk) so that they can be traded in the secondary market. it is permitted for the holders of the Sukuk of the ownership of tangible assets. Nevertheless. be him the issuer of Sukuk or the manger of the Sukuk. to guarantee the face value of the Sakk or its return. after the sale of these usufructs the Sakk represents the rent. 4. they become entitled to the rent payable in the sublease contract. i. based on the market factors of offer or demand. these Sukuk of forward lease are not tradable unless the assets have been delivered. 6. Each Ijarah Sakk represents a common share in the ownership of the usufructs of the tangible assets before these usufructs are sold to a third party. whether it is equal. 10. and they are among the leasable assets. Moreover. Ijarah Sakk does not represent a certain amount of money. However. subject to Shari’a rules of sale of debt. he will come to own them based on a sale or Istisna’ or any other contract. 9. to issue Ijarah Sukuk representing undivided shares in the usufructs they came to own by virtue of owning the tangible assets or usufructs of the assets for the purpose of subleasing the same with the permission of the original lessor.DFM Standard For Issuing. which becomes a receivable payable by the lessee and thus. like a real estate property or a vessel. higher or less than the first rent.e. i. the owners who lease assets are liable for them in case of full or partial damage. Sukuk holders own the usufruct of these assets once the lease contract is signed and thus. 8. In case signing the lease agreements was prior to the Sukuk issuance. or to be leased. However. tangible assets provided these assets have fulfilled their relevant Shari’a conditions. or they may be a liability upon his part. whether the lease is for a rent equivalent. However. 2. The leased assets may be already owned by the Sukuk issuer. the rent. or the holders of the Sukuk of the ownership of usufructs. It is not permitted for the seller of the usufruct. 3.
the former involves title of both the corpus and the usufruct (Sukuk of ownership of tangible assets). the time for their execution and the remaining conditions are the same. 10.3 The Sukuk holders shall have the right to conduct on the Sukuk assets all the legally valid acts like sale. if the object of promises. the following will take place: 10. However. in this sale contract it is a must that: 10. with no restrictions. The Sukuk of ownership of the leased assets or the asset to be leased represent the right of their holders in the ownership of the assets. The assets represented by the Sukuk of ownership of tangible assets must be owned by their seller when selling them to the Sukuk holders. and in his financial statement they appear off balance sheet. It is permitted for the holders of these Sukuk.4 The purchase undertaking given by the lessee of the Sukuk assets shall bind the promising party only so that the Sukuk holders are not obliged to sell to him these assets. 10. The sale is genuine and genuinely transferring to the Sukuk holders the complete or the incomplete ownership of the asset form both Shari’a and legal perspectives.5 The sale undertaking given by the Sukuk holders as owners of the assets shall bind them to sell the assets to the lessee. They grant them the right over the fund realized from the sale of these assets or the sale of their usufructs. with the observance of the above conditions. while the latter involves title of the usufruct only and not the corpus (Sukuk of ownership of the usufruct of tangible assets). who is not obliged to buy them. and its title can be transferred from both legal and Shari’a perspectives to the Sukuk holders or the agent that represents them. The object of sale (the Sukuk assets) is among the saleable assets. 4. returns.3. one from the lessee on purchase and the other from the Sukuk holders on sale. It is not permitted to have two promises.2. This ownership however is either complete or incomplete. As a result. the assets must have been established as liability by description on the seller. or even 16 . 2. lease-back to the seller and the likes. Sukuk of ownership of leased or to be leased assets 1.DFM Standard For Issuing.2.1 The assets (sold assets) become no longer the property of the seller. Acquiring and Trading Sukuk ownership from both Shari’a and legal perspectives. and they shall enjoy their gains and privileges (proceeds.2.1. 3. to lease these assets after they come to own and possess them. and thus bestowing on the Sukuk holders all privileges of ownership to conduct all legally valid acts on the asset itself or its usufruct with no restriction whatsoever. 10.2. 10.2 The right of Sukuk holders attaches the assets (the assets) to which they hold title (the Sukuk assets) and not the liability of the Sukuk holders who sold the assets. 10. 5.2. rents and profits) according to the terms outlined in the prospectus and the issuance contracts. and the Sukuk holder must come to possess them physically or constructively. 10. The holders of these Sukuk shall become liable for the assets represented by these Sukuk (their damage and loss) each in proportion to the number of the Sukuk he holds. The title to these assets must be transferred to the Sukuk holders by virtue of a valid title-transferring sale. When selling them on Istisna or Salam.2.
It is permitted for the lessee of the assets represented by the Sukuk to undertake to purchase these assets in case he has defaulted on meeting his financial commitments toward the Ijarah agreement. The purchase price in this case could be any price agreed upon at the time of executing the purchase. The ownership of the usufructs represented by the Sukuk must be transferred from the seller of these usufructs to the Sukuk holders. i. so that he either owns the asset whose usufruct is to be sold or the usufruct alone and not its underlying asset. this undertaking binds him alone and not the Sukuk holders. or as an agent on behalf of the Sukuk holders to manage these assets against fixed fees plus a good management incentive. These Sukuk represent their holders’ right in the ownership of the usufructs of assets that will be either sold or leased. 10. before possessing them. the price could be a market price. 3. 6. the market price. returns. It is permitted to appoint the seller of the assets represented by the Sukuk as Mudareb against a share in the profit. 5. rents and profits) according to the 17 . in accordance with the Shari’a-compliant issuance contracts and in ways that do not harm others’ rights. the title to these assets represented by the Sukuk is transferred from the seller to the buyer along with their rights and obligations. a fair price or equivalent to the net assets value or the face value. 9. It is permitted to trade these Sukuk.DFM Standard For Issuing. However. It is permitted for the Sukuk holders to undertake to gift or sell on a determined price the assets represented by the Sukuk to the lessee of these assets. Acquiring and Trading Sukuk to lease them on forward lease basis. As owners of the assets represented by the Sukuk. 7. and they shall enjoy their gains and privileges (proceeds. The usufructs represented by the Sukuk may be usufructs of assets that are established as a liability by description on the seller’s part to deliver on the date determined in the lease contract. for they represent claims to tangible assets (already leased or to be leased at a later stage). When traded. 8. a fair price. and whether it is operating lease or Ijarah Muntahia Bittamlik. the Sukuk holders have the right to conduct on these asses all valid acts. 4. regardless of whether the lessee is the original seller or a third party.e. and it can be issued by a third party on any price. who buy them through a lease contract. 11. The holders of these Sukuk shall become solely liable for the damage or loss of these usufructs. regardless of whether the lease is to their original seller or to a third party. If the usufruct is already sold to a third party then issuing Sukuk against this usufruct is not allowed since the usufruct no longer belongs then to its seller. 2. It is permitted for the seller then lessee (operating lease) of the assets represented by the Sukuk to unilaterally undertake to redeem the Sukuk upon their maturity by means of purchasing the assets (Sukuk assets) on the price agreed upon at the time of executing the purchase. The usufruct represented by the Sukuk must be owned by its seller when it is sold to the Sukuk holders. or equivalent to the net value of the assets or their face value. Alternatively. each in proportion to his share in these usufructs. They also give their holders the right to claim the proceeds realized from the sale or lease of the assets’ usufruct. Sukuk of usufructs 1.
7. or to appoint him as Mudareb against a share in the profit. 6. which is a debt liability upon the lessee. the title to these usufructs represented by the Sukuk is transferred from the seller to the buyer along with their rights and obligations. The holders of Sukuk of usufructs of assets have the right to sell or lease these usufructs. Acquiring and Trading Sukuk terms outlined in the prospectus and the relevant Sukuk contracts. rendering otherwise the contracts fictitious or conducive to Riba or Inah. It is permitted to trade Sukuk of usufructs of assets.DFM Standard For Issuing. the usufructs and the rights of utilization to the Sukuk holders. 9. They shall not include any conditions that contradict the nature of these contracts or their Shari’a objective. not the corpus of its underlying specified asset. because the Sukuk would represent then the price of the usufruct or the rent. for a specified time period. This right attaches the asset and not the liability of the seller who issues the Sukuk. When traded. 8. Restriction to this right is not permitted unless if in accordance with the issuance contracts and in ways that do not harm others’ rights. Sukuk of ownership of usufructs of specified assets 1. or part of it (part of its duration) through a lease contract. which transfer the ownership of the assets or the assets’ usufructs. It is permitted for the Sukuk holders to undertake to gift or sell on a determined price the assets’ usufructs represented by the Sukuk to the original seller of these usufructs or to a third party. and in the lease contracts which give Sukuk holders the direct right of utilization that: 4. and it reflects an incomplete ownership for the Sukuk holders. 4. 2. for they represent the Sukuk holders’ claims to usufructs ownership. 10. this sale is not perceivable if the Sukuk holders have already sold or leased the usufruct. These are Sukuk issued by the owner of a particular asset with the aim of leasing the asset or selling its usufruct for a specified period and receiving the rental from the revenue of subscription so that the ownership of the usufruct of the assets passes to the Sukuk holders. They shall also give Sukuk holders the absolute right to conduct on them all the legally valid acts. 3. 11. However. These Sukuk are issued on the basis of a sale of the right of the usufructs.1. The sale is executed then on the remaining duration of the usufruct. It is permitted for the seller of the usufruct through Sukuk issuance to unilaterally undertake to purchase at a determined price the remaining usufruct (the duration of the usufruct) upon the maturity of the Sukuk. 18 . It is permitted to appoint the seller of the assets’ usufructs represented by the Sukuk as an agent on behalf of the Sukuk holders to manage these usufructs against fixed fees plus an incentive corresponding to the amount in excess of a certain rent limit. It is a condition in all sale contracts. These are Sukuk issued by the owner of a usufruct of a specified asset (the lessee) through leasing the asset with the aim of subleasing the same and receiving the rental from the revenue of subscription so that the usufruct of the assets passes into the ownership of the holders of the Sukuk. The contracts are genuine so that they transfer the ownership of the assets. It is permitted for the Sukuk holders to sell the whole usufruct (its whole duration) represented by the Sukuk through a usufruct-selling contract.
5. attaches these very assets and not the liability of the Sukuk issuer who sold or leased these assets.DFM Standard For Issuing. or the remaining period of the services. each to the proportion of the Sukuk he holds. The right of the Sukuk holders in the assets or the assets’ usufructs and their utilization. The services purchased become the property of the Sukuk holders so they have the right to sell them to a third party (the service receiver) against an agreed-upon price or fee. A.2. Sukuk of human labor (Service Ijarah Sukuk) Sukuk of service Ijarah give their holders the right to own a service provided by the Sukuk issuer (the service provider) and to sell this service and claim its price from its buyer or user. However the services sale or lease contract must fulfill its all Shari’a rules and conditions. Acquiring and Trading Sukuk 4. Alternatively. their holders shall share these Sukuk risks. it is permitted for the Sukuk holders to undertake to sell at any of these prices the unutilized services or the remaining period of the services to the seller of the services who manages the Sukuk on behalf of their holders. Based on the above: 5. the owner of services. Similarly. Sukuk of services provided by unspecific provider 1. The sale or lease contract is capable of producing its legal effect so that the object of the contract (the sold or leased asset) admits all acts of disposal. at a fair price. These Sukuk are issued with the aim of purchasing a specific service from a particular provider (like the service of tuition from a particular provider) with its price being paid with the funds mobilized through subscription. any price agreed upon at the time of executing the purchase or at the face value. 5. Sukuk of services provided by a specific provider 1.1. market price. B. and they shall also enjoy the Sukuk gains and privileges according to the terms outlined in the prospectus and the issuance contracts. so that on his financial statement they appear off balance sheet. The services purchased become the property of the Sukuk holders so they have the right to sell them to a third party (the service receiver) against an agreed-upon price or fee. The services represented by these Sukuk may be obtained from a specified service provider or from an unspecified one. 4. Since services Sukuk represent ownership rights in the services. The ownership of the underlying Sukuk assets and usufructs should be removed from the books of the seller. 19 .2. and become the property of the Sukuk holders rendering them the right to conduct on them all valid acts. 2. which are acquired by the funds realized from subscription. These Sukuk are issued with the aim of purchasing a service established as liability by description without specifying its provider. who has not utilized them yet. with its price being paid with the funds mobilized through subscription. The ownership of these services is immediately transferred from their provider to the Sukuk holders through a sale or lease contract. It is permitted for the seller of the services to undertake to purchase the unutilized services. 3. may sell them to the Sukuk holders against a determined price or fee. including transferring its title from its seller to the Sukuk holders and from both legal and Shari’a perspectives.
so that the selling price of the later part is not equivalent to the face value of the Sukuk. which must fulfill its all relevant rules and conditions and produces its legal effects. 9. As for Sukuk of forward services they are also subject to the same rules. 2. 7. then after issuance they represent undivided shares in the Mudaraba assets purchased with the capital. then the Mudareb is bound by the restrictions incorporated in the Mudaraba contract. These Sukuk are issued on the basis of the Shari’a contract of Mudaraba. 5. 8. The issuance prospectus and its underlying Mudaraba contract must determine the respective profit share of the Mudareb as well as the Sukuk holders. provided it is reasonable for such remaining period. 4. Participation Sukuk Mudaraba Sukuk: General Rules 1. nevertheless. and which he neither could anticipate nor avoid. Sukuk holders provide the capital to be invested by the Mudareb. The sale. They represent at issuance undivided shares in the Mudaraba capital. for they represent ownership rights over these services. These Sukuk are issued by the Mudareb for the purpose of utilizing the issuance realized fund in a particular project or activity. If only part of the services represented by the Sukuk has been sold or utilized then the ratio of this part to the unsold one must be taken into consideration for the tradability of these Sukuk. which is a debt liability upon the other. This is in order for the sale not to be fictitious like when the service of a ten-year period is sold for one thousand. Restriction to this right is not permitted unless if in accordance with the issuance contracts and in ways that do not harm others’ rights. 3. however. while the Mudareb shall lose his efforts in this case. It is permitted for the services Sukuk holders to undertake to gift. or the remaining duration of the services. each party may waive to the other his share in the 20 . for the price referred to in clause (4). 6. When traded. The holders of services Sukuk have the right to dispose of the unutilized part of the services or their remaining period.DFM Standard For Issuing. upon the distribution of profit. It is permitted to trade the Sukuk that represent specific services before and not after the sale or the full utilization of these services. 8. they never represent a debt liability upon their issuer (the Mudareb) for their holders (the capital providers). The Mudareb is responsible for returning the Mudaraba capital and the realized profit unless he proves that the Mudaraba assets have been damaged or lost for reasons that were beyond his control. Acquiring and Trading Sukuk 5. It is permitted for the seller of a service for a specific period of time to undertake to buy the remaining period of the services at a price determined in the very sale undertaking. The loss that is not attributable to the Mudareb shall be borne by the Sukuk holders. is not permitted if the services have already been utilized or sold to others for the Sukuk represent in this case the due price or fee of the service. If the Mudaraba is restricted and not absolute. However. since this may render the very transaction fictitious. then bought when only one year is remaining for one thousand as well. The realized profit shall be distributed between the Sukuk holders and the Mudareb according to a ratio agreed upon in advance and stated in both the prospectus and the Mudaraba contract. ownership of these services or the remaining period thereof is transferred from the seller to the buyer along with its rights and obligations. 6. 7. sell or lease to the original seller the remaining unutilized services.
The Mudareb is responsible for refunding the Mudaraba capital if it remains intact as well as the realized profit on the maturity of the Mudaraba after liquidation of the Mudaraba assets. 2. he would be held liable for the Mudaraba capital and the realized profit. 10. negligence or misconduct in respect to taking the appropriate investment decisions. 12. The Mudareb invests Mudaraba assets on a trust basis in which case he is not liable for damage or losses of these assets except in cases of breach of the requirements of trust. 9. i. Sukuk holders on the other hand. Acquiring and Trading Sukuk profit or a part thereof. between the selling price and the Mudaraba capital. a fair price or a price equivalent to the net value of the Mudaraba assets. if the Mudaraba assets remain the same as they were at the time of giving the undertaking and without a change in their value. negligence or mismanagement however binds the Mudareb only and not the Sukuk holders. Sukuk holders shall not have the right to compel the Mudareb to execute the purchase (the actual execution of the very purchase contract). Sukuk of Musharaka in Profit A. for this price represents then the Mudaraba capital for which Mudareb becomes liable in the aforementioned cases. It is permitted to issue Sukuk for the purpose of acquiring a common share in the ownership of an asset or a usufruct so that the other partner remains the owner of the remaining share. Mudareb may provide an undertaking to purchase the Mudaraba assets at their face value.e. being the owners of the Mudaraba assets. In case of dispute between the Sukuk holders and the Mudareb over the occurrence of misconduct it is the responsibility of the Mudareb to prove that the occurrence of damage or loss was for reasons beyond his control. at the price that will be agreed upon at the time of executing the purchase. If the Mudareb does not execute his undertaking. the Sukuk holders shall then have the right to sell the Mudaraba assets in the market and claim from the Mudareb the difference. in cases where Mudareb is held liable for the loss. and 21 . However. they are liable to pay the Mudareb his share in the realized profit. It is permitted that the Mudareb undertakes to purchase the Mudaraba assets upon the maturity of the Mudaraba. otherwise. if any. according to the standards of an experienced Mudareb in the respective Mudaraba activity. a fair price or a price equivalent to the net value of the Mudaraba assets as will be agreed by the two parties or by a third party determined mutually in the Mudaraba contract or the issuance prospectus. however. and which he neither could anticipate nor avoid. The said undertaking in cases of breach of the agreement. It is permitted for the Mudareb to undertake to purchase the Mudaraba assets at the price that will be agreed upon at the time of executing the purchase. 11. the market price. 13. However a previous agreement to this effect may not be made in the Mudaraba contract or the issuance prospectus. negligence or misconduct in respect to taking the appropriate investment decisions. However. at the market price. have the right to dispose of the Mudaraba assets. Sukuk holders and the other partner are like foreigners to each other so that no party has the authority to act on behalf of the other unless with delegation of power.DFM Standard For Issuing. in cases of breach of the requirements of trust. Sukuk of Joint Ownership 1.
while the Sukuk issuer’ share is the net value of his project or venture based on a valuation conducted by a specialized independent party. for the purpose of receiving the monetary contribution of the Sukuk holders. they can be issued by a party seeking a Musharaka capital to be invested in a particular project or venture. it is permitted to give the agent an incentive if the return on principal’s share has exceeded a certain limit. Contractual Musharaka Sukuk can be issued in two different structures: 1. First. then a common share in the Musharaka assets when these assets are purchased with the Musharaka capital. the manager may handle the management as a Mudareb against a share in the profit or as an agent against a specific fee plus a percentage in the realized profit as 22 . It is permitted to appoint the project owner (the Sukuk issuer) as the Musharaka manager against a specific fee based on a management contract which must be independent of the Musharaka contract. In the latter case. 2. as partners. 1. 4. existing. Second. It is also permitted for the Sukuk holders. This project or venture is owned by the Sukuk issuer. specific and Shari’a compliant project or venture. He handles the management of this partnership and may become a partner to it if he buys some of the issued Sukuk. a particular project or a specific venture regardless of its legal form. they can be issued by the owner of an asset. to be the party handling the management of the project against a specific fee. However.1. Sukuk of Musharaka in a particular. It is permitted as well that the management is handled jointly by the Sukuk holders’ representative and the Sukuk issuer or by a third partly appointed by them based on a mutual agreement. and the share of each partner. 4.1. but not in investment. Acquiring and Trading Sukuk each party is independently entitled to the return on his share in the ownership. However. 4.1. 3. against a determined fee. Contractual Musharaka Sukuk is two types: 4. 3.2. then it is permitted. First. at a fair value or at the price that will determined by an independent party. However. The Sukuk holders’ share in the specific project or venture is the Sukuk issuance realized fund. through their representative.DFM Standard For Issuing. The combination of the cash contributed and the value of the tangible assets contributed constitute the capital of this partnership. Musharaka Sukuk (contractual partnership) 1. all Shari’a rules and conditions must be fulfilled in this project or venture. shall be proportionate to his contribution. The contribution of the Sukuk issuer shall be in the form of tangible assets of his project or venture. to develop a project or furnish it with new equipments.1. and the aim of issuance is to expand the venture or increase its capital. Each Sakk represents a common share in the Musharaka capital when Sukuk are issued.2. the Sukuk issuer and Sukuk holders.1. if the purchase undertaking was on the value that will be agreed upon at the time of executing the purchase. B. It is permitted to appoint the other partner as an agent in acts like taking procession or assets or settling payments. It is not permitted for the Sukuk issuer who manages the Sukuk to give a purchase undertaking to the Sukuk holders to buy their share in the Musharaka assets at its face value.
4.2. and thus the holder of these Sukuk shares profit and loss in proportion to the number of Sukuk he holds.1. Acquiring and Trading Sukuk incentive if applicable. he would be held liable for the Mudaraba capital and the realized profit. 4. The partners’ shares in this Musharaka shall be determined by measuring the ratio of the net value of the project assets to the fund realized for the issuance of the Sukuk. However.2. Both Sukuk holders and Sukuk issuer (Sukuk holders’ partner) are liable for loss in proportion to each partner’s share in the specific project or venture. However. 6. this contribution may be in form of cash money or some tangible assets.2.5. 4. at a fair value. 4. Whatever applies to the Sukuk of Musharaka in existing project in terms of appointment of the Musharaka manager and his undertaking to buy the Sukuk holders’ share in case of wrongful acts or on the maturity of the Sukuk applies as well to this type of Sukuk. 4. These Sukuk represent a common share in the ownership of the project. The managing partner manages the project on trust basis.DFM Standard For Issuing.1. if the purchase undertaker was not the Sukuk manager. 7.3. and which he could neither anticipate nor avoid. It is permitted for the Sukuk issuer who owns a specific project or venture to issue Sukuk with the aim of using the Sukuk issuance realized fund to increase the capital of the project and expand its activities. 5. negligence or misconduct in respect to taking the appropriate investment decisions according to the standards of an experienced Mudareb in the respective Mudaraba activity. while profit shall be distributed as per agreement. Profit shall be distributed as per their agreement.1. the project manger manages the project on trust basis. However the price may be equivalent to the face value of the Sukuk holders’ share in the Musharaka in cases of breach of the requirements of trust. Second. and the issuer is a partner in proportion to the number of Sukuk he subscribe to. In all cases. 4. if a dispute arises between the Sukuk holders and the managing partner over the occurrence of misconduct then it is the responsibility of the managing partner to prove that the occurrence of damage or loss was for reasons beyond his control. so he is not liable for the damage or loss of the Musharaka assets unless in cases of breach of trust or negligence. otherwise. and he is not liable in principle for the Musharaka assets. then he may undertake to purchase it at face value. a market value or the net value and not the face value. The loss shall be borne by the two partners according to the said ratio.2.1.1. 23 . It is permitted for the Sukuk issuer who manages the Sukuk to undertake to purchase the share of the Sukuk holders in the project at the price that will be agreed upon at the time of executing the purchase. It is not permitted for the Sukuk manager (Sukuk holders’ partner) to undertake to purchase the share of the Sukuk holders in the specific project or venture (the project) at its face value. 4. Musharaka Sukuk that are aimed for financing a specific project or venture that will start with the fund mobilized through the issuance of the Sukuk. It is permitted for the Sukuk issuer to form a partnership with the Sukuk holders whereby each partner makes a specific contribution to a specific capital.4.6.
Acquiring and Trading Sukuk Finance Sukuk A. It is permitted to issue Sukuk for the purpose of utilizing their proceeds in the purchase of a fund of a legal entity and independent financial liability. 1. Murabaha and Bay’ Bethaman Ajel Sukuk 1. Istisna’ Sukuk are issued for the purpose of utilizing their proceeds in the purchase of some assets of certain specifications on Istisna’ basis. It is not permitted to trade Murabaha and Bay’ Bethaman Ajel Sukuk. according to the view of Sheikh Dr. usufructs. 4. Istisna’ Sukuk 1. In case of Murabaha. cash money. 2. It is permitted to return (sell) the Salam goods (to their seller) provided they are not food in kind and the price is not higher than the original selling price. D. 2.2. They can be issued as well against assets already purchased through Istisna’ so that the Sukuk issuer sells them to third party through a parallel Istisna’. Salam Sukuk 1. It is also permitted to. to trade (sell to a third party) the Salam goods at their market value. only the return of the Salam goods to their original seller is permitted and not their trading. 5. Abdulsattar Abughuddah. Salam Sukuk are issued in two different ways: 1. 3. Funds Sukuk 1. 3. It is not permitted to trade Istisna’ Sukuk. Murabaha or Bay’ Bethaman Ajel Sukuk are issued for the purpose of utilizing their proceeds by the issuer to buy some goods then sell them on Murabaha or Bay’ Bithaman Ajil basis. which is inclusive of tangible assets. One: After the Sukuk issuer has already purchased the Salam goods. since such resale is deemed Iqala (cancellation of contract). according to the view of Sheikh Dr. The Sukuk holders own the Istisna’ assets and so have the right to sell them through a parallel Istisna’ and claim the price. 2. the Sukuk issuer will have already obtained a promise backed by adequate guarantees from specified parties to buy these goods on Murabaha basis. then the sale of these assets either after taking delivery of them or before through a parallel Istisna’ that is independent of the first. receivables and financial rights provided: 24 . C. The Sukuk holders replace the Sukuk issuer in the ownership of the goods purchased so each one owns a share in these goods in proportion to the number of Sukuk he holds. Two: When the Sukuk issuer undertakes in the Sukuk prospectus to buy some goods on Salam basis then sell them to the Sukuk holders. which is in line with the Fiqh academy resolution and AAOIFI standards. However.1. 3. 4. Hussain Hamed Hassan.DFM Standard For Issuing. but subject to the fulfillment of the relevant Shari’a conditions. The holders of these Sukuk are the joint owners of the goods purchased so they proportionately share the selling price and the profit margin. B.
2. The ratio of cash. 25 .DFM Standard For Issuing.1. the rights of personal utilization of assets and financial rights is below 30% then acquiring this fund is not permitted unless with observance of the Shari’a rules pertaining to sale of receivables. receivable or the two combined shall not exceed 70% of the total fund assets. money or the two combined together. the usufructs. if the ratio of the tangible assets. The purpose of establishing this fund is not to go around the sale of debt or cash so that they can be traded without the observance of their relevant Shari’a rules. However. Acquiring and Trading Sukuk 1. 1.
2 Neither the Sukuk issuer nor the Sukuk manager or the user of the fund mobilized from subscription. otherwise the very issuance and its underlying contract are null and void. such as in stocks or funds. the value agreed upon at the time of executing the purchase. without any misconduct. and which he neither could anticipate nor avoid. The Sukuk manager’s undertaking to buy the Sukuk assets at ‘any value’ does not amount to a guarantee of the Sukuk assets resulting thus in holding the Sukuk manager liable for these assets in cases of full or partial damage or loss. a fair value or the value determined by the market experts at the time of executing the promise. Musharaka or Wakala Bilistethmar is permitted to guarantee to the Sukuk holders the face value of their Sukuk or a certain return on their investment. This is because the purchase undertaking binds its undertaker only when the assets promised to buy are existent at the time of its executing. However. or when they fully or partially lose their value. This promise binds the promising party and not the beneficiary. the net assets value. The actual harm in this case shall correspond to the difference between the cost of acquiring the goods and their 26 . It is permitted as well for this promise to originate from the Sukuk manager so that he undertakes to buy the Sukuk assets described in the undertaking at one of the permitted values. because selling non-existing assets is not valid. The promise to purchase 1. then the purchase undertaking may not be on the face value of the Sukuk. The meaning of guarantee in this context is guaranteeing the value of the Sukuk assets by the guarantor when they get destroyed or damaged.1 Sukuk holders shall bear the risk and reap the fruits of the assets in which the fund realized from their subscription is invested. however. but only on a fair value or the market value. It is permitted for the holders of Istethmar Sukuk to obtain from a third party a binding promise over the purchase of the Sukuk assets at certain time or upon the maturity of the Sukuk. Consequently: 1. Investment in Sukuk is an investment in ownership rights whereby Sukuk holders bear the risk of the assets in which the fund realized from their subscription is invested. 5.DFM Standard For Issuing. The investment Sukuk manager is obliged to physically or constructively liquidate the Sukuk assets upon the maturity of the Sukuk as per the market practice. 3. the market value. 2. but only to be demanded by the beneficiary to compensate him for any actual harm that may attach him as a result of default on the promise. while if the assets have been destroyed or damaged then the undertaking is not executable. it is not permitted to force the promising party to execute his promise. and to refund the capital as well as the realized profit unless he proves that the Sukuk assets have been damaged or have lost value for reasons beyond his control. 4. if the assets undergo depreciation in their value. Acquiring and Trading Sukuk Sukuk Guarantees General Rules 1. Sukuk do not represent debts liability upon their issuer towards their holders. the Sukuk manager shall guarantee the value of the Sukuk assets in these cases unless he proves that their occurrence was for reasons beyond his control. Thus. through one of the investment contracts like Mudaraba. 1. negligence or breach of the issuance conditions on the part of the guarantor. Nevertheless.
however. the lessee is the Sukuk manager through Wakala Bilistethmar. However. and to refund the capital as well as the realized profit to the Sukuk holders. It is permitted for the purchase undertaking of the Ijarah Muntahia Bettamleek Sukuk assets to be at a value equivalent to the remaining unpaid fixed rental (fixed rentals balance). If it was damaged or disposed of then the promise would not bind its giver since purchase of non-existing assets is not valid. The Sukuk issuer. negligence or misconduct in respect to taking the appropriate investment decisions which should normally be expected of an investment expert. if he claims damage. on the other hand. It is permitted for the Sukuk manager or the Sukuk issuer of finance Sukuk (Sukuk of 27 . then the burden of proof shall lie on his shoulder to suggest that the occurrence of these incidents was not the result of his breach of the requirements of trust. however. partner or investment agent) to undertake to lend the Sukuk holders in case of shortfall in the Sukuk assets expected returns. Lending undertaking by the investment Sukuk manager 1. Undertaking of purchase at price equivalent to the remaining unpaid fixed rental (the non-managing lessee’s undertaking) 1. Guarantees in Investment Sukuk 1. The guarantee shall be over the capital and in accordance with the general rules of guarantees. Acquiring and Trading Sukuk selling price when sold to a third party. and which shall remain as per description until the time of executing the promise. Such undertaking does not tantamount to guaranteeing the capital or the profit to the Sukuk holders (neither to a non-independent third-party guarantee if the Sukuk manager was the one who sold the leased asset to a third party). Musharaka or Wakala Bilistethmar upon the maturity of the Sukuk. regardless of whether the leased assets were originally bought from the same lessee or a third party. loss or deterioration in the market value of the Sukuk assets. negligence or misconduct in respect to taking the appropriate investment decisions which should normally be expected of an investment expert) or the investment rules stipulated by the Sukuk holders. Mudaraba or Musharaka then the undertaking is not permitted. If. the lessee is a service agent then the undertaking is permitted. for this involves the prohibited combining of a commutative contract with a loan contract. In this case. for the Sukuk manager to source a Shari’a compliant financing or an interest-free loan in order to cover the shortfall. is obliged to liquidate the assets of Mudaraba. Manager of Istethmar Sukuk may guarantee the value of the Sukuk assets in case of breach of the agreement (cases of breach of the requirements of trust. It is permitted. The obligation to liquidate the Sukuk assets and refund the capital 1. It is not permitted for the Sukuk manager (as Mudareb. Lending undertaking by the investment Sukuk manager 1.DFM Standard For Issuing. 2. This promise shall not bind its giver unless it is given on something known by description. who utilizes the Sukuk proceeds. If. the Sukuk manager shall claim the same amount from the future profit or the selling price of the Sukuk assets.
because in this case the Sukuk manger can be deemed as a third party. because this guarantee nullifies profit sharing. Acquiring and Trading Sukuk assets. the underlying principle of investment. usufructs or rights of utilization) to give an undertaking independent of the financing contract to lend the Sukuk holders in case of shortfall in the Sukuk assets expected returns.DFM Standard For Issuing. It is not permitted for the manger of investment Sukuk to guarantee for the Sukuk holders a certain profit as a fixed amount or as a percentage of the capital. Guarantee of a certain determined profit for the Sukuk holders 1. 28 .
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