NORTH SOUTH UNIVERSITY

Law Assignment

Submitted to:
Adv. Saquib Rahman
Senior lecturer: North South University
Course Name: Law 200
Section:6
Submitted by
Md.Nur Shaharia Jahan
ID:2132644630

Debenture Holding in Sharia Law Countries

The Arabic term for law, shariah, translates as "road" or "path." Sharia law is another name for Islamic
law. This is an Islamic tradition-based religious law. It is not a set of rules; rather, it is a collection of
overarching ethical and moral ideas drawn from the sayings of Prophet Muhammad (SAW) and the Holy
Quran. All of the major Islamic nations uphold sharia law since it is Islamic law. Sharia law is used in
Saudi Arabia, Yemen, Oman, Qatar, Iran, and other nations. They manage their businesses in accordance
with this Islamic rule. However, only two banks adhere to Islamic law when conducting banking
operations. The two banks, one of which is in Saudi Arabia and the other in Afganistan. Although Al-Rajhi
is a bank in Saudi Arabia that complies with sharia law, the Saudi government has not awarded them the
title of Islamic bank. Sharia law forbids the use of interest since it is founded on Islamic values. A Muslim
is not permitted to receive interest, also known as riba, whether it comes from their company or a bank;
it has been classified as haram.A long-term investment known as a debenture offers a fixed rate of
interest in return for a certain amount of cash.

The primary categories of debentures are shown below. Only a small number of them come within the
convertibility category and are now used by Islamic banks like CIMB Islamic Bank Berhad in Malaysia.As
we can see when interest is included in debentures, one way to obtain loans from regular people is by
assuring them that the company would pay them a specific amount of interest, such as 5%, 10%, or any
other percentage, when they purchase debentures. A Muslim is not allowed to ingest it. According to
Investopedia, there are two sorts of debentures: debt instruments and security instruments of the
issuer. Debentures are entirely interest-based, as a result, and Islamic nations don't utilize them for their
firms. Instead, they utilize "Sukuk," or food that is halal or otherwise permitted by sharia. Islam
recognizes suukuk. It is an interest-free loan financing. Therefore, Sukuk holders need to own a piece of
the assets that are being funded. The revenue produced by the assets serves as the reward for the
financing provided by the sukuk holders. Because most sukuk are "asset-based" and not "asset-backed,"
investors hold the cash flows but not the actual assets. This, obviously, has a higher risk than asset-
backed Sukuk. We may consequently conclude that debentures are entirely interest-based; as a result,
She thought that after four years, the enterprise would thrive and turn a profit because of his brilliance
and the fact that he had studied the idea. As a result, the corporation reevaluated the project after four
years and determined that it now costs $300 million USD. Rifat will thus be responsible for 15 million
USD in this case. Islamic bonds can be created in a variety of forms, but the partnership (musharaka) or
lease (ijara) structure is by far the most popular. Usually, real estate is bought by Islamic bond issuers,
who then rent it out to tenants to make money. By issuing the Sukuk or certificate, the issuer transfers
ownership of the issuer's assets to the Sukuk holder. The issuer collects the revenue and gives it to the
owners of Sukuk. This demand for a portion of the property's earnings may permit the contract to be
governed by Sharia law.

Murabaha: Riba is not the foundation of muraba. Riba usage is not part of murabaha. Instead, it is
something that has only financial motivations. It is a kind of contract where a bank sells a client a good
or service in exchange for a profit. In this arrangement, the vendor will disclose to the customer both his
cost price and his profit on the sale of his goods. The most popular sharia-compliant funding option used
by banks is murabaha.

Istisna: Istisna is a kind of sukuk, which is an agreement between a seller and a buyer to sell the things
mentioned in the sukuk when they have been produced. This is permissible by sharia, the Islamic code
of law. In this case, the price should be set or agreed upon in advance.

Salam: This alternative form of agreement. It also falls under the Sukuk category. Salam is an agreement
where Upon prompt payment and deferred delivery, one party purchases the assets of another. Salam
capital is used to describe the whole worth of the assets. Additionally, the salam capital owed to the
opposite party under a salam contract must be paid. Saudi Arabia, Hong Kong, Turkey, Somalia, Qatar,
Pakistan, Malaysia, etc. are among the nations that use Sukuks. We can see that Sukuk is an alternative
to other bonds that are legal under Islamic law. It is a widely used strategy in Islamic finance to
substitute bonds.

References

1. Chen, J. (2021, August 31). Debenture.

Investopedia
https://www.investopedia.com/terms/d/debenture.
asp
2. Nasser, F. (2021, September 3). Countries that follow sharia law. Tbsnews
https://www.tbsnews.net/world/countries-follow-sharia-law-297286
3. What is sharia law. (2021, August 19). BBC
News
https://www.bbc.com/news/world-
27307249