In the Name of Allāh,

the Entirely Merciful, the Especially Merciful

Praise is due to Allāh, Lord of the worlds, may the blessings and peace be upon our master Muḥammad, the last of prophets, on his family, and all his companions.

Resolution No. 178 (4/19) Islamic Ṣukūk (Tawriq):

Contemporary Applications and Trading

The Council of the International Islamic Fiqh Academy of the Organization of the Islamic Conference, holding its 19th session in Sharjah, United Arab Emirates, on 1–5 Jumādā al-Ūlā 1430h (26–30 April 2009),

Having examined the research papers submitted to the Academy concerning

Islamic Ṣukūk (Tawriq): Contemporary Applications and Trading, Having listened to the discussions on the subject,

Resolves

First: Definition of Tawriq and Taskik

Conventional tawriq or securitization means the transformation of debts into securities (bonds) that are equal in value and tradable. These securities constitute an interest-bearing debt, which the issuer owes to the security bearer. Shariah strictly prohibits the issuance and trading of this type of securities.

As for taskik (Islamic securitization), it means the issuance of financial doc- uments or certificates that are equal in value and constitute common shares in the ownership of assets (assets, usufructs or rights; or a mixture of assets, bene- fits, money and debts), either actually existing or to be obtained or constructed by using the issuance proceeds. This type of securities is issued by virtue of a Shariah-compliant contract and remains under its rulings.

Second: Characteristics of Ṣukūk

1. Ṣukūk constitute common shares of real
2. Ṣukūk are issued according to a Shariah-compliant contract, which they abide by its rulings.
3. Absence of guarantee by manager (whether a muḍārib, an agent or a managing partner).
4. Ṣukūk are entitled to a share of profit as per the ratio agreed upon and bear a share of the loss commensurate with the portion of ownership

they represent. Nonetheless, Ṣukūk holders are not allowed to get a pre- determined ratio of the nominal value of the suk (singular of Ṣukūk) or a given amount of profit.

5. Ṣukūk bear entire investment
6. Ṣukūk also bear all burdens and consequences ensuing from ownership of the assets they represent, including investment expenses, decline in value, maintenance costs or insurance contributions.

Third: Shariah Rulings on Ṣukūk

1. It is not permissible that ṣukūk manager pledges to lend ṣukūk holders or make donations to them when actual profit falls below expected When the final result of the investment is apparent, ṣukūk manager may pay ṣukūk holders the difference between expected and actual profits or lend it to them. If, however, this act becomes usual and customary it is considered as a pledge.
2. Ṣukūk manager is a trustee and therefore should not guarantee the value of the ṣukūk except in case of transgression or negligence or when he violates the Muḍārabah, partnership, or investment agency
3. Ṣukūk should not be redeemed at a nominal value. They should be redeemed at market value or the value agreed upon at the time of

4. Regarding the tradability of ṣukūk, criteria stated in the Academy resolu- tion 30 (4/5), should be observed, including the following:

   1. If ṣukūk assets are still in the form of money, Shariah rulings on exchange should be applied.
   2. If assets have been converted into debts, as is the case in Murābaḥah, ṣukūk become tradable, subject to Shariah rulings on debts. Trading of ṣukūk, in this case, is prohibited except for its same kind in the form of hawala (debt transfer).
   3. When Qirad (Muḍārabah) capital is an asset mix comprising money, debts, assets and benefits, qirad ṣukūk become tradable at consensual price, provided that the major part of qirad capital is in the form of assets and If the major part of qirad capital is in form of money and debts, trading of ṣukūk shout be subject to Shariah rulings indicated in an explanatory note that shall be prepared and presented to Academy’s forthcoming session.

In all cases, ṣukūk trading should be registered in the records of the issu-

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ing party.

Fourth: Permissibility of ṣukūk trading should not be used as a pretext for securitization and trading of debts as, for instance, when a fund activity is trans- formed to trading in debts that originate from goods while keeping part of the goods as a fund component in order to justify trading.

Fifth: Contemporary Applications of Ṣukūk

Given that Shariah is capable to cater for all emerging issues at any time, and since Islamic ṣukūk constitute the outcome of an innovative effort to find a Shariah-compliant instrument of financing that could serve the purpose of sig- nificant economic projects, ṣukūk have proved to be suitable for a diversity of forms of utilization. Monetary policy, mobilization of funds or investment of excess liquidity of Islamic banks, renovation and development of Awqāf prop- erties and financing of government projects are among the areas where ṣukūk are considered effective instruments. Ṣukūk can also be useful in temporary privatization schemes. However, the return on all these types of ṣukūk should be stemming from income-generating assets.

Recommendations

1. Islamic banks should commit themselves to search for solutions that re- spond to economic needs and, at the same time, abide by Shariah
2. Given that the legal framework of securitization is one of the basic pre- requisites that have much bearing on issuance success, legislative bodies in OIC Member states should provide the appropriate legal framework and suitable legal environment that govern the securitization process. This can be done through introducing legislations that support the di- verse aspects of the securitization processes, and achieve economic effi- ciency and Shariah