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. 188 (3/20) Pursuit of Research on Islamic Ṣukūk

The Council of the International Islamic Fiqh Academy of the Organization of Islamic Cooperation, holding its 20th session in Oran, People’s Democratic Republic of Algeria, on 26 Shawwāl – 2 Dhū al-Qi’dah 1433h (13–18 September 2012),

Having examined the research papers submitted to the Academy concerning the Pursuit of Research on Islamic Ṣukūk,

Having listened to the discussions on the subject,

Having reviewed the recommendations of the symposium on “Islamic Ṣukūk: Review and Assessment” organized by Academy in Jeddah, Kingdom of Saudi Arabia, at the premises of the Islamic Economics Research Institute of King Abdulaziz University, in collaboration with the latter, and with the Islamic Research and Training Institute of the Islamic Development Bank Group, on 10-11 Jumada al-Akhira 1431 (24-25 May 2010),

Having considered the Academy resolution no. 178 (4/19) entitled, Islamic Ṣukūk (Tawriq): Contemporary Applications and Trading, issued in its 19th session, and other resolutions,

Having also listened to discussions on the subject,

Resolves

First: General Criteria

1. Islamic ṣukūk must achieve Shariah objectives regarding enhancing de- velopment, supporting actual activities and achieving justice between the two dealing parties.
2. The ṣukūk contracts must achieve their true implications regarding Shariah and legal establishment of ownership and hence the consequent ability of disposal and bearing of liability. Contracts should also be free from tricks and fictitiousness and should bear assurances of leading to Shariah-acceptable
3. Ṣukūk documents must contain necessary mechanisms for controlling

their application, ensuring their freeness from tricks and fictitiousness and rectifying any probable defect in them. A periodical review should also be made to ensure the appropriate use of the ṣukūk proceeds for their specific purpose and execute all contracts’ requirements as desired by Shariah.

4. Islamic ṣukūk should reflect all key differences between them and in- terest-based securities concerning structuring, design and composition. Such characteristics should also be recognized in designing mechanisms of marketing and pricing of ṣukūk.

Second: Pledges

1. The muḍārib, partner or agent should not pledge to do any of the following:

   1. Purchase of the ṣukūk or their assets at nominal or any other predetermined value, as such arrangement will lead to the guarantee of the capital or receipt of an amount of cash at present against repayment of a larger amount in the future. Cases of infringement and negligence are to be treated exceptionally because they necessitate a guarantee of ṣukūk holders’
   2. Lending ṣukūk holders when actual return from ṣukūk is less than expected since such deal is classifiable either as combining loan and sale in one transaction or dealing in an interest-bearing loan. Nonetheless, it is permissible to allocate a reserve amount out of profits in order to make up for such probable return
2. It is permissible in Shariah to resort to hedging to mitigate capital risks in case of ṣukūk and the like, provided that hedging is arranged through cooperative or takaful insurance that complies with the rules of

Third: Lease of an Asset to its Seller

It is not permissible to sell an asset for cash on condition that the seller takes the same asset on lease under a pledge of ownership transfer, against a total amount (rent + price) that exceeds the cash price of the asset, regardless of whether such condition is explicit or implicit. A transaction of this type falls under the pro- hibited Inah sale, and hence, ṣukūk issuance on this form are not permissible.

Fourth: Lease of a Specified Asset to be delivered in the Future

1. It is permissible to lease specifically defined assets that are yet to be de- livered, provided that the lease is arranged in conformity with relevant Shariah rules, and, hence, such lease can be used as a basis for ṣukūk

2. This mode, however, faces some problems in two respects:

   1. Shariah ruling on the postponement of rent amount beyond adjournment of majlis al-ʿaqd (attendance of the parties).
   2. Shariah ruling on the trading of ṣukūk that are based on a lease of specified assets to be delivered in the

The Academy recommends that the Secretarial of the Academy forms up a team of scholars and experts to study this mode in the light of the preceding points and present a detailed study to the forthcoming session.

Fifth: Trading of Securities (Ṣukūk, Shares, Investment Funds Units, etc.)

1. When the underlying assets of the security are purely money or debts, the trading of secrity should be subject to rulings on exchange.
2. If the underlying assets of the security are purely tangible assets, benefits or rights, trading of the security can be as per price agreed upon.

3. If the underlying assets of the security are a mixture of money, debts, tangible assets, benefits and rights, there will be two cases:

   1. The first case is when debts and money are attributable (follow) to what they should be attributed to (tangible assets, benefits, administrative apparatus and economic activity), and the securities embodies ownership of what is followed (tangible assets, benefits, administrative apparatus and economic activity). In this case, it is permissible to trade the security irrespective of the ratio of debts and money in overall assets.
   2. The second case is when such attribution (subordination) is nonexistent, and the security does not embody ownership of the followed components. Trading, in this case, is subject to rules of “predominance (majority).”
4. If the company or the project represented by the security is yet to start actual operation or is under liquidation, security trading should be sub- ject to the rulings based on predominance (majority) of (assets + benefits)

versus (money + debts).

5. It has become apparent from the research papers submitted to the Academy that appendance could take place through ownership of the workshop, business or activity. It has also become apparent that the con- cept of predominance (majority) is of wide scope.

Therefore, due to the need for determining criteria relating to the concept of appendance as well as those relating to the concept of predominance (majority) and presenting the cases pertaining to each of the two concepts, the Academy recommends that the Secretariat of the Academy may convene a team of schol- ars and experts to study these two concepts in the light of the preceding points and submit a detailed study on them to the forthcoming session.

Sixth: Effect of the Academy Resolutions on Past Contracts

1. The Academy resolutions are applicable from the date of issuance without affecting contracts that precede them, including ṣukūk issued based on a Shariah-recognizable ijtihād (interpretative judgement).
2. It is incumbent upon Muslims to follow the purified Shariah guidance in all their affairs and deeds as much as they can because Allāh the Almighty said, «So fear Allāh as much as you can,» (Al-Taghābun, 16) and He also said, «On no soul doth Allāh place a burden greater than it bears.» (Al- Baqarah, 286) Having done this, Muslims will obtain forgiveness from Allāh the Almighty for what they cannot accomplish. Nevertheless, they should continuously work for overcoming any inability and surpassing the stage of necessity-based rulings, to make full use of the pearls of wisdom of Shariah and enjoyment of the righteous life of Islamic society under the divine teachings of Allāh the

Indeed, Allāh is All-Knowing.