In the name of Allah,

The Entirely Merciful, The Especially Merciful

Praise is due to Allah, Lord of the worlds, may the blessings and peace be upon our master Muhammad, the seal of Prophets, on his family, and all his companions.

Resolution No. 248 (10/25)

Sharia Rulings on Contemporary Applications of Debt Rescheduling, Composite, and Hybrid Sukuk

The Council of the International Islamic Fiqh Academy of the Organization of Islamic Cooperation, holding its 25th session in Jeddah, Kingdom of Saudi Arabia, on 29 Rajab – 3 Shaaban 1444H (20-23 February 2023),

Having examined the research papers submitted to the Academy concerning Sharia Rulings on Contemporary Applications of Debt Reschedule, Composite and Hybrid Sukuk,

Having listened to the discussions of the Academy’s members and experts,

Resolves

First: Sharia rulings on the applications of debt rescheduling

• Debt rescheduling is converting an established debt into a larger debt in exchange for extending the maturity. It amounts to the cancellation/replacement of a debt by a new debt.
• The Academy reiterates its resolution no. 101 (4/11) on Debt Sale and Loan Debentures, which states the following: “It is not permissible to sell a deferred debt by the non-debtor for immediate cash, of its kind or any other kind, because this results in ribā (usury). Likewise, it is not permissible to sell it for a deferred cash, of its type or otherwise, because it is similar to selling a debt for a debt, which is prohibited in Sharia”.

The Academy also reiterates its resolution no. 158 (7/17) on the Sale of Debts, which states: “Debt-for-Debt Swap, which Sharia prohibits, includes all and any arrangement involving or indirectly leading to ’increasing the amount of debt against extending the maturity’. One form of such arrangement is a debt swap, in which the original debt is settled, partially or entirely, through a new transaction between the two parties that creates a new larger debt regardless of whether the debtor is solvent or not. For example, the debtor purchases a commodity from his creditor for a deferred price and sells it for an instant price used to settle the original debt or part of it.”

• Any form of debt rescheduling that leads to an increase in the debtor’s debt in return for an extension of the maturity or which serves as a gateway to this (debt increase for extension), is considered a cancellation/replacement of a debt by a debt, which is prohibited in Sharia.
• According to Sharia, the power of the contracting parties to amend their contracts is limited to the amendments that do not violate the rulings of Sharia, such as the prohibition of increasing the amount of a debt established as a liability in return for an extension in the due date of payment, regardless of whether it arises from Murabaha, Istisna, Salam, or others. Therefore, any amendments should not violate anything forbidden by an Ijma (consensus), such as interest on debts.

Second: Composite and Hybrid Sukuk

After examining the research papers presented on this subject, the Council of the Academy decided to postpone adopting a resolution therein for further research and studies.

Recommendations

First: Emphasizing the Academy’s previous recommendations, which include several solutions for defaulting debtors, including its resolution no. 218 (2/23) concerning Sharia Rulings on Insolvency and Bankruptcy.

Second: Calling on Islamic financial institutions to help defaulting debtors through a financing scheme that enables them to raise up their businesses and, as a result, to repay their debts.

Third: Calling on Sharia boards of Islamic financial institutions to adhere to the Academy’s resolutions regarding the sale, cancellation, and rescheduling of debt.

Indeed, Allah is All-Knowing.