SHARIAH ANALYSIS OF SALE/DEBT BASED SUKUK: THE MALAYSIAN SAGA

By Mughees Shaukat

ABSTRACT

Malaysia, backed by its aim to become the hub of Islamic banking and finance has gained some unprecedented ground; more so when it comes to SUKUK. The Malaysian sukuk market dominated by “Sale/Debt Based” sukuk has experienced phenomenal growth ever since its inception, However it has also raised many controversial issues (as is clear from this research). A financial product’s claim of being Shariah compliant cannot be accepted unless it is shown to be in consonance with the objectives of Shariah. The mechanisms used in such Sukuk today however, strike at the foundations of these objectives and rendering Sukuk exactly the same as conventional bonds in terms of their economic results. This study has tried to prove this point by using some new testing parameters, which provide a litmus test to determine the legality of Shariah compliant instruments. These new parameters include financial reporting, legal documentation of contract and intent of the Shariah in terms of fulfilling Maqasid Al-shariah. This study while highlighting a number of controversies and issues pertaining to the much criticized contemporary Malaysian practices of sukuk, has also raised a lot of question marks on the future of sukuk and the whole industry. After all ‘the “Islamic” in “Islamic economics and finance” should relate to the social and economic ends of financial transactions, rather than the contract mechanics through which financial ends are achieved’.