structuring sukuk al-ijarah in the netherlands - isfin · ijarah some legal questions rise under...
TRANSCRIPT
Electronic copy available at: http://ssrn.com/abstract=1718384
TILBURG LAW SCHOOL LEGAL STUDIES RESEARCH PAPER SERIES
Structuring Sukuk al-Ijarah in the Netherlands
Omar Salah Tilburg Law School
Tilburg Institute for Interdisciplinary Studies of Civil Law and Conflict Resolution Systems (TISCO)
TISCO Working Paper Series on Banking, Finance, and Services 08/2010
November 2010
Tilburg Law School Legal Studies Research Paper Series No. 07/2011
This paper can be downloaded without charge at TISCO Working Paper Series on Banking, Finance and Services, available at the Social Science Research Network
http://www.ssrn.com/link/Tilburg-TISCO-Banking-Financing.html
Electronic copy available at: http://ssrn.com/abstract=1718384
Electronic copy available at: http://ssrn.com/abstract=1718384Electronic copy available at: http://ssrn.com/abstract=1718384
- 1 -
Structuring Sukuk al-Ijarah in the Netherlands
Omar Salah
Abstract
The Islamic banking & finance market is growing fast. With an annual growth of 15%, this sector seems much promising. Within the Islamic finance market, sukuk (Islamic securities) are arguably the
most important Islamic financial products. Although several European countries are entering the market with success, the subject is still rather unknown in the Netherlands. This raises the question to
the possibilities for sukuk in the Netherlands. The main focus of the study is to analyse the legal aspects of the sukuk al-ijarah structure under Dutch civil law. Adapting these instruments to the Dutch legal context requires a thorough understanding of sukuk and of its religious, legal, and
transactional requirements. Through an interdisciplinary approach and a comparative study, this research will lead to more insight into Islamic financial principles and Islamic financial contracts,
enabling the reader to understand sukuk structures and transactions. This study illustrates whether the sukuk al-ijarah can be structured under Dutch civil law, raising questions in regard to the fiducia-prohibition of section 3:84 (3) Dutch Civil Code, the concept of a trust under Dutch property law, and
the certification of assets under Dutch civil law.
Electronic copy available at: http://ssrn.com/abstract=1718384Electronic copy available at: http://ssrn.com/abstract=1718384
- 2 -
Structuring Sukuk al-Ijarah in the Netherlands1
Omar Salah2
1. INTRODUCTION
1.1 Introduction to Islamic finance market
Financial activities concerning Islamic finance have grown significantly in recent years. The
Islamic finance sector shows a growth of 15% a year.3 Worldwide, there were 300 Islamic
financial entities operating in 2006 with total assets counting over USD 300 billion and assets
under management (AuM) counting USD 400 billion. Islamic financial products are also
establishing a foothold in Europe.4 The market for sukuk, worth USD 100 billion, seems
promising.5 In 2004, Germany issued the first European-based and backed sukuk. The first
Islamic bond in the United Kingdom (UK), issued by Dubai Islamic Bank and therefore also
listed on the Dubai International Financial Exchange, was quoted on the London Stock
Exchange (LSE) in March 2007.6 Since this first issue, new Islamic bonds have been issued
nearly every month on the LSE. The demand for Islamic financial products appears
considerable in the Netherlands as well, because the Netherlands is home to just under one
million Muslims.7 Furthermore, some financial institutions are eyeing the market for Islamic
financial services with interest.8 However, Islamic financial products, and the issuance of
sukuk in particular, are not known in the Netherlands. So the question arises to the
possibilities of Islamic financial products such as sukuk in the Netherlands.
1 This paper is largely based on the draft of a book to be published by Wolf Legal Publishers in 2010: O. Salah,
Islamic Finance: Structuring Sukuk in the Netherlands, Nijmegen: Wolf Legal Publishers. Publication date 2010. 2 PhD candidate at the TISCO research institute of the Private Law Department of Tilburg Law School (the
Netherlands). The subject of his PhD research is Islamic finance. He is also affiliated with the law firm De
Brauw Blackstone Westbroek. 3 DNB June 2007
4 Verhoef, Azahaf & Bijkerk 2008, p. 22
5 Schouten 2009
6 Verhoef, Azahaf & Bijkerk 2008, p. 22
7 Verhoef, Azahaf & Bijkerk 2008, p. 23
8 Verhoef, Azahaf & Bijkerk 2008, p. 23
- 3 -
1.2 Purpose of the study
The purpose of the research is studying the possibilities of the issuance of sukuk al-ijarah, a
specific form of sukuk, in the Netherlands. This will be realised with a descriptive study.
Understanding Islamic finance requires an interdisciplinary approach. The basic principles of
Islamic finance are based on the ideas of Islamic economics. Therefore, an economic
understanding of the subject is essential. Moreover, Islamic finance and Islamic economics
both originate from Islamic law and, therefore, it is important to discuss the principles from a
religious perspective. So in order to understand the basics of Islamic finance, Islamic law
needs to be studied and, consequently, a theological approach of the subject seems ineluctable.
Important and relevant studies on Islamic economics and Islamic law are in Arabic and Urdu,
while studies on Islamic finance are mostly in English. Therefore, this research consists of a
literature study of English, Dutch, German, (and translations of) Arabic, and Urdu sources.
Once the basics of Islamic finance are clarified, the structures of sukuk need to be examined.
The legal structures of sukuk are based on English concepts, so a study of these English
concepts and of the structures of sukuk is important for a better understanding of the sukuk al-
ijarah. As mentioned before, sukuk is unknown in the Dutch financial practice and, therefore,
there is uncertainty in regard to the legal structure of this product under Dutch civil law. It is
uncertain whether it is possible to structure the sukuk al-ijarah under the current Dutch civil
law or whether legislative changes are needed. This research discusses the legal issues9 of the
sukuk al-ijarah structure under Dutch civil law and clarifies the legal infrastructure of the
sukuk al-ijarah structure.10
From a legal perspective the issuance of sukuk al-ijarah contains
similarities with a (legal) securitisation-structure.11
In order to mark out the research, merely
civil law aspects of the (legal) structure of the sukuk al-ijarah will be discussed.12
9 In order to mark out the research, legal issues such as the enforceability of the transactional documents, the
choice of law, and enforcement of judgments will not be discussed in this research. 10
The choice for the sukuk al-ijarah structure for the Netherlands will be justified in paragraph three. 11
However, the main focus of this research will be on sukuk and its position in relation to conventional bonds.
Therefore, the development of the securitization market within the Islamic finance market and the comparison of
securitization with the sukuk al-ijarah structure will not be discussed in this research. 12
This means that regulatory and tax law aspects of sukuk will not be discussed in this research. However, the
UK made several legislative changes in order to make the issuance of sukuk possible. These legislative changes
regarded tax law and regulatory law. For a better understanding of the regulatory and tax law aspects of sukuk
one can examine the reports on these legislative changes: Budget 2007; Budget 2008; HM Revenue & Customs
2008; HM Revenue & Customs 2009; HM Treasury 2007; HM Treasury 2008a; HM Treasury 2008b; HM
Treasury & FSA 2008.
- 4 -
First of all, paragraph two describes the basics of Islamic finance. Since the topic is quite
unfamiliar, a general introduction to Islamic finance seems necessary. Besides this, it is also
needed in order to understand the several transaction forms, which are used with sukuk.
Afterwards, paragraph three discusses sukuk al-ijarah; the essential features of this product,
its structure, and a comparison with conventional bonds. In paragraph four this transaction
will be structured in order to fit in the Dutch legal system. When structuring the sukuk al-
ijarah some legal questions rise under Dutch civil law and therefore the possibilities and
difficulties under Dutch civil law need to be examined. Lastly, a conclusion will be given.
2. INTRODUCTION TO ISLAMIC FINANCE
2.1 Islamic Law
The Islamic view of life exists of Aqidah, Akhlaq and the Shari’a. The Shari’a has given rise
to two bodies of Islamic law: ‘Ibadat13
and Mu’amalat14
. Political, economic and social
activities are part of Mu’amalat. So banking and financial activities obviously form part of the
economic activities within the Fiqh al-Mu’amalat. Fiqh is knowledge of the practical
regulations and rules of the Shari’a acquired by reference to and detailed study of the
sources.15
Therefore, it is important to understand what the sources of Islamic law are. Annex
A contains a schematic overview of the Islamic view of life.
2.1.1 Sources of Islamic law
In accordance with the classical formulation of the sources of Islam there are two classical
sources of law. The first one is the Holy Book of the religion Islam, the Qur’an, which was
revealed to the Prophet Muhammad. Some eighty verses of the Qur’an refer to legal topics,
although there are gaps and doubts in these verses as to whether the legal injunction is
obligatory or permissive.16
After the Qur’an, the second of the classical sources is the
collection of authentic Hadith, which is considered to be the proof of the Sunna. The Sunna is
the normative or model behaviour of the Prophet. Furthermore, the Sunna was notably
continued by the Prophet Muhammad’s successors, the four Caliphs. The Caliphs, Abu Bakr,
‘Umar, ‘Uthman and ‘Ali, continued to solve the cases which came before them in an ad hoc
13
For more on ‘Ibadat see: Nasr 1999, p. 52-56; Kamali 1991, p. 211; Nyazee 1994, p. 67 14
For more on Mu’amalat see: Zahrah 1950, p. 57-59; Zaydan 1967, p. 57-58; Al-Misri 1994, p. 52-56 15
Nasr 2002, p. 123 16
Hengst (Recht van de Islam 3) 1985, p. 10; Pearl 1979, p. 1
- 5 -
manner, and the solutions were based on interpretations of the Qur’an from where they drew
their source.17
The discipline of Usul al-Fiqh, the ‘roots of Islamic law’, can be described as
the Islamic legal theory. There are four official bases of Islamic law: the Qur’an, the Sunna,
ijma’, and qiyas. This illustrates that there are two material sources, a method, and a
declaratory authority; the decisive instance is the ijma’, since it guarantees the authenticity of
the two material sources and it determines their correct interpretation.18
One should keep in
mind the vital distinction between the ‘classical’ sources of Islamic law and the ‘material’
sources of the law.
2.1.2 Subsidiary sources of Islamic law
The use of human reasoning, called ra’y, played an important part in the development of
Islamic law. Ra’y, however, has the restriction that it can only be applied to Mu’amalat,
because guidelines pertaining to ‘Ibadat are understood by jurists to be beyond reasoning
whereas the guidelines pertaining to Mu’amalat are subject to reasoning.19
The first
specialists and the Qadis started ra’y with the exercise of personal opinion and individual
judgements. Later on, based on individual reasoning, the existence of a number of subsidiary
sources of law was conceded: ijtihad, istihsan and istislah. Istihsan and istislah are examples
of particular forms of ijtihad. However, these forms were unacceptable and quickly
terminated, since they permitted the use of discretion and personal reasoning, even within
certain ascertainable limits.20
Ijtihad was not strictly a source of law, but it was rather a
method by which the Mujtahid recognised and made known the legal meaning of the Qur’anic
rules or the Sunna. Once he did this, the consensus of opinion would either reject or accept
the theory, and if it was accepted by ijma’, it became an incorporated part of the Shari’a.
From about 900 AD, the exercise of ijtihad had exhausted itself and the ‘door of independent
reasoning’ was closed.21
The position which is taken from then on is taqlid and a person who
is bound to practice this is called the muqallid. Under the definitive formulated rule of taqlid,
the doctrine must not be independently accrued from the Qur’an, the Sunna, and ijma’, but it
must be accepted as it is being taught by one of the recognized schools, which are themselves
embraced by consensus.22
There are two main divisions in Islam, ‘Sunni’ and ‘Shi’a’.23
The
17
Pearl 1979, p. 5; For examples see: Coulson 1994, p. 24-5 18
Schacht 1964, p. 112-115 19
Zaydan 1967, p. 57-58 20
Pearl 1979, p. 15-16 21
Some historians, however, refer to the early tenth century as the date of the closing of the door of ijtihad. See:
Pearl 1979, p. 14-15 22
Schacht 1964, p. 71
- 6 -
four ‘Sunni’ Islamic schools of law are ‘Hanafi’, ‘Maliki’, ‘Shafi’i’ and ‘Hanbali’.24
And the
three ‘Shi’a’ branches are ‘Ithna ‘Ashari’, ‘Isma’ili’, and ‘Zaydi’.25
An introduction to Islamic law was necessary, in order to understand Islamic finance. Since
banking and finance are parts of the economic system, it is also worthwhile to discuss the
structure of Islamic economics, under which the Islamic financial system is supposed to
work.26
2.2 Islamic Economics
2.2.1 The beginning of Islamic economics
One manifestation of the Islamic revival of the late nineteenth century was the emergence of
Islamic economics as a distinct branch of economics.27
Sayyid Jamal al-Din al-Afghani was
the most influential pioneer of Islamic modernism and anti-imperialism from the 1880s and
he sought to change Islam from a religious faith into a politico-religious ideology.28
Much of
the effort of the Islamic modernisers was in legal reform and ijtihad.29
The pioneering efforts
of al-Afghani were viewed with much respect by the self designated Islamic economists who
undertook the re-evaluation of economic theories from an Islamic perspective, since they saw
themselves as modernisers in his mould.30
In the early decades of the twentieth century, there
were dispersed writings on economic issues throughout the Muslim world.31
The first
influential writer was Sayyid Abu al-A’la Mawdudi, who popularised the term ‘Islamic
economics’. Many of his followers had a good knowledge of Western neo-classical
economics through their undergraduate and postgraduate degrees and professional training,
and were later to become significant contributors to the literature themselves.32
23
Islam consists of a number of religious denominations, with the primary division being between ‘Sunni’, by
far the largest group in Islam, and ‘Shi’a’, the second-largest group in Islam. An important point on which they
differ is the question who the rightful successor of the Prophet Muhammad was. 24
Hengst (Recht van de Islam 3) 1985, p. 11; Pearl 1979, p. 16 25
Pearl 1979, p. 17 26
Ayub 2008, p. 41 27
Wilson (Islamic Thought in the Twentieth Century) 2004, p. 195 28
Keddie (Pioneers of the Islamic Revival) 1994, p. 11-29 29
Esposito 1998, p. 126-132 30
Wilson (Islamic Thought in the Twentieth Century) 2004, p. 195 31
Rahman 1942; Ahmad 1947 32
Amongst its most notable contributors this new generation included: Mannan 1970; Siddiqi 1981; Chapra
1992; Naqvi 1994
- 7 -
2.2.2 Islamic economics, Marxism, and Capitalism
Baqir al-Sadr, another writer who was trained in Islamic jurisprudence, wrote Iqtisaduna33
to
demonstrate the incompatibility of both Marxism and Capitalism with Islam.34
He rejected the
class categorisation of Marxism as simplistic, as capitalists and workers are not just products
of a system of production, but are also human beings with moral responsibilities.35
While
material consumption and having power over resources, seen as factors motivating men, are
the ends for Marxists, for Muslims these are only the means, while the ends are spiritual.36
Muhammad Nejatullah Siddiqi suggested that Communism is in conflict with the basic
requirements of the moral and spiritual growth of the human personality, which in the
economic sphere requires private property and freedom of enterprise.37
Since the recognition
of private property and the legitimacy of markets are inherent to both, it might appear that
Islam has more in common with Capitalism, but Muslim writers see a lack of balance and
moderation in Capitalism.38
Mawdudi described Capitalism as extreme, with excessive accent
on the rights of individual ownership and freedom of enterprise that inflicted suffering and
privation for those who owned little.39
Undue emphasis on self-interest and the profit motive
gave rise to a society lacking human character, brotherhood, sympathy and co-operation.40
Islam stresses a more generous attitude with respect to the ownership of wealth, whereas
Capitalism is more possessive.41
Syed Nawab Naqvi was critical of the Capitalists’ neglect of
human relations and especially their exploitation of labour.42
2.2.3 Islamic economics as a doctrine
Amongst most of the writers there was an apparent disquiet about following ‘positivist
economics’.43
Out of these writings some general features come into sight to distinguish
Islamic economics as a doctrine.44
The definition of ‘Islamic economics’ begins with the
assertion of the sources from which the principles and the particulars of the doctrine are to be
derived: the Qur’an, the Sunna, ijma’, and qiyas. Just like in the other fields of Islamic
33
Al-Sadr 1961; Shubber 2000; Rieck 1984 34
Wilson 1998, p. 46-59 35
Wilson (Islamic Thought in the Twentieth Century) 2004, p. 202 36
Wilson (Islamic Thought in the Twentieth Century) 2004, p. 202 37
Siddiqi 1981, p. 52-53 38
Wilson (Islamic Thought in the Twentieth Century) 2004, p. 203 39
Mawdudi 1966, p. 52-83 40
Siddiqi 1981, p. 46 41
Wilson (Islamic Thought in the Twentieth Century) 2004, p. 205 42
Wilson (Islamic Thought in the Twentieth Century) 2004, p. 205 43
Al-Ba’li 1987, p. 31-3; Nur 1978, p. 18-20; Kamal 1980, p. 17-18; Al-Fanjari 1981, p. 18-20; Al-Fanjari 1986,
p. 91-3; ‘Uthman 1990, p. 33-4 44
Tripp 2006, p. 111
- 8 -
knowledge and prescription, various writers differ about the degree of latitude allowed to
reasoned interpretation through ijtihad, as well as about the selection of jurists to be cited as
authoritative sources for understanding the rules of Islamic economy.45
As a consequence of
this, there were contrasting approaches among Muslim intellectuals helping to define this
field.46
Some of these intellectuals focused on the explication of Qur’anic verses and on the
writings of the jurists over the centuries, presenting expository account of what these sources
have to say about riba, zakat, ‘ushr and kharaj, the status of property, accounting and the
market.47
Whereas others have addressed current economic affairs of a generic nature, seeking
to brew prescriptions for economic activity with an explicit set of Islamic values, and
endeavouring to ensure that their exhortations remain true to the principles contained in the
founding texts, while trying to engage successfully with the economic sphere as presently
constituted at the same time.48
However, all the above leads to some distinguishing features of
Islamic economics: (1) the principles of Islamic economics derive from Islamic sources; (2)
conform Islamic economics, human beings should be driven by moral, ethical, and spiritual
motives; (3) Islamic economics recognizes private property; (4) freedom of enterprise and
legitimacy of markets is inherent to Islamic economics; and (5) in accordance to Islamic
economics, human well-being should be realised through an allocation and distribution of
scarce resources to achieve economic equality and emphasise fairness in society.
Although Mawdudi had coined the term ´Islamic economics´, it was merely from the 1970s
that the subject took on some of the characteristics of an academic discipline, and by then it
had its own group of scholars engaged in academic debate and a growing literature of books
and journal articles.49
At the institutional level this was helped by the newly formed
Organisation of the Islamic Conference.50
The work of most of the writers was brought to the
attention of a wider community of Muslim scholars when Muhammad Nejatullah Siddiqi
published his survey of contemporary literature on Islamic economics for the First
International Conference on Islamic Economics held in Mecca in 1976 under the auspices of
King Abdulaziz University of Jeddah.51
45
Nur 1978, p. 53-5 46
Tripp 2006, p. 111-112 47
Philip 1990, p. 124-8; Nomani & Rahnema 1994, p. 45-8. For ‘traditional’ approaches to the identification of
Islamic economics see: Yahia 1988; Al-‘Abbadi 1977; Al-Masri 1989; Imam 1986; Al-Qardawi 1995. 48
Tripp 2006, p. 111-112 49
Wilson (Islamic Thought in the Twentieth Century) 2004, p. 200 50
Wilson (Islamic Thought in the Twentieth Century) 2004, p. 200 51
Siddiqi 1981
- 9 -
2.3 Islamic Finance
Islamic banking and monetary theory is arguably the most developed area of Islamic
economics, where real progress has been achieved in terms of implementation, both within
and outside the Muslim world.52
From the 1950s, publications on interest-free banking started
to appear and a notable early contributor was the scholar Muhammad Uzair.53
The key
concept is that lenders must participate in the risk of the business, in order to earn a reward.54
The Islamic economic model emphasises fairness, which is reflected in the requirement that
everyone involved in a transaction makes informed decisions and is not misled.55
Basically,
Islamic banking has the same purpose as conventional banking, except that it operates in
accordance with the Fiqh al-Mu’amalat, which contains the Islamic rules on transaction.56
2.3.1 Shari’a review board
Most Islamic banks appoint a board or committee of religious scholars who are tasked with
reviewing the bank’s Islamic operations and transactions in order to ensure that they comply
with the Fiqh al Mu’amalat.57
This Shari’a review board gives an approval report, also
known as a fatwa, to the bank. The fatwa contains the argumentation of the review board and
describes the Shari’a rules underlying the contract form.58
The Shari’a review board also
assesses whether business is conducted in a Shari’a-compliant manner59
and it plays a role
that is comparable with the Supervisory Board at a conventional financial institution.60
Most
Shari’a review boards consist of an uneven number of scholars, with the minimum of three, to
avoid stalemates in the case of conflicting opinions, since they decide by majority vote.61
The
Shari’a review board can base its judgements on diverse Islamic schools of thought, so it is
possible that a fatwa of one review board is based on the interpretation that is not endorsed by
other Shari’a review boards and, consequently, a product can be considered Shari’a-
compliant by one review board and non-compliant by another.62
Therefore, consensus on this
52
Wilson (Islamic Thought in the Twentieth Century) 2004, p. 210 53
Uzair 1955 54
Zaman 2008, p. 41 55
Ainley et al. 2007, p. 4 56
Qadri 2008, p. 59 57
Hanif 2008, p. 10 58
Thomas, Cox & Kraty 2005, p. 32-35 59
This concerns e.g. the product development process, the financing method, the sales process, and the
administrative handling. 60
Verhoef, Azahaf & Bijkerk 2008, p. 13 61
Verhoef, Azahaf & Bijkerk 2008, p. 12 62
Verhoef, Azahaf & Bijkerk 2008, p. 12
- 10 -
part is needed. This is were forums like the Accounting and Auditing Organization for Islamic
Financial Institutions63
(‘AAOIFI’), which publishes the widely followed Shari’a Standards,
and the Islamic Financial Services Board64
(‘IFSB’), which publishes various technical
standards for Islamic banks, play an important role.65
2.3.2 Islamic principles in general
2.3.2.1 The concept of making profit
Although one would think the opposite, making profit by trade is stimulated by Islam.66
Islam
encourages and promotes the right of individuals to pursue personal economic wellbeing.67
Striving to gain profit is ethically justified, as long as higher values stay intact.68
Islam even
stimulates commercial transactions.69
Trade should take place based upon a legal structure:
there should be a contract.70
A contract is binding and has to be executed.71
The legal concept
of good faith should be known in the contract.72
This means that the seller has a pre-
contractual obligation to inform the purchaser about the quality of the goods.73
The Qur’an
encourages the written commitment of a commercial contract.74
So generally in Islam,
commercial transactions and contracts are permissible, unless there is a clear prohibition or
unless it is haram, i.e. forbidden by Islamic law.75
2.3.2.2 Halal transactions
In general, Muslims are not allowed to engage in activities which are prohibited under the
Shari’a. For a transaction, this means that all activities should be for permitted purposes, so
they should be halal transactions. It is not permissible to invest in businesses which are haram.
These prohibited investments concern investments relating to, amongst others, alcohol, pork,
armaments, military technology, pornography, prostitution, and gambling.76
It also not
63
AAOIFI Overview, http://www.aaoifi.com/overview.html (last visited September 20, 2009) 64
Islamic Financial Services Board, http://www.ifsb.org/ (last visited September 20, 2009) 65
Holden 2007, p. 362 66
Qur’an 2:275 67
Ainley et al. 2007, p. 4 68
Kung 2006, p. 742 69
Qur’an 4:29; Qur’an 2:275 70
Tjittes 2008, p. 139 71
Qur’an 5:1; Qur’an 17:34 72
Qur’an 17:35; Majeed 2004, p. 97 et seq. 73
Tjittes 2008, p. 139 74
Qur’an 2:282 75
Kamali 2000, p. 45 76
Vine et al. 2008, p. 414-415
- 11 -
permissible to provide any financing to conventional businesses, which are not Shari’a-
compliant. A very strict rule, however, would have the consequence that Islamic banks would
not be able to invest in a large number of businesses. Therefore, in light of the practical
considerations of international commerce and to enable Islamic banks to participate in it, a
number of prominent Shari’a scholars have advanced the view that it is permissible to invest
in businesses which are not entirely Shari’a-compliant so long as certain conditions are met:
(1) the principal business activity must be permissible under the Shari’a; (2) any income
derived from prohibit activities should only form a small percentage77
of the overall income
of the company; (3) the aggregate amount of interest that a company is obliged to pay under
loans taken out by it, must not exceed a certain percentage78
of its assets.79
2.3.2.3 Zakat
One of the five pillars of Islam, the five duties incumbent on every Muslim, is zakat, giving
alms.80
It derives from the Qur’an81
that the payment of zakat, a tax on property, results in
purification from sin.82
The notion is that if an owner sees the value of his property increase,
then he should share some of this growing prosperity in this world to gain favour in the next.83
It is a mandatory charity that, beyond a threshold of one year’s accumulated wealth, every
Muslim has to pay to the poor and the needy.84
2.3.3 Prohibitions in Islamic finance
2.3.3.1 Riba
The most important rule of Islamic finance is the prohibition of paying and receiving riba,
which is often, although inaccurately, translated as interest.85
There are many Qur’anic verses
prohibiting riba.86
Given the breadth of the doctrine of riba, it is also translated as ´unjustified
77
This percentage ranges from 5 to 20 per cent of the overall income depending upon the nature of the
prohibited activity concerned and the Shari’a scholars involved. 78
There are disagreements between Shari’a scholars as to what percentage is acceptable, but it ranges from 25 to
40 per cent of total assets depending upon the scholars involved. 79
Hanif 2008, p. 10 80
The other four pillars of Islam are: Shahada, profession of faith; Salat, prayers; Sawm, fasting during the holy
month of Ramadan; Hajj, pilgrimage to Mecca. 81
Qur’an 87:14 82
Aghnides 1961, p. 208 83
Wilson (Islamic Thought in the Twentieth Century) 2004, p. 214 84
Durrani & Boocock 2006, p. 152 85
El-Gamal 2006, p. 11-12 86
Qur’an 2:275; Qur’an 2:276; Qur’an 2:277; Qur’an 2:278; Qur’an 2:279; Qur’an 2:280; Qur’an 2:281; Qur’an
3:130; Qur’an 4:161; Qur’an 30:39
- 12 -
enrichment´.87
Ibn Rushd, also known as Averroes, stated that the jurists agreed that usury88
is
found in two things: (1) sales and (2) that which is established as a liability through sale,
credit, or other transactions.89
Riba which is incurred as a liability is of two kinds.90
First is
that about which there is no agreement and this is the riba of the period of jahiliyya91
.92
The
second kind is loss for hastening (the period).93
Riba in sales is also of two kinds: delayed
(nasi’a) and stipulated excess (tafadul).94
So the two kinds of riba in sales are called riba al-
fadl and riba al-nasi’a. Riba al-fadl concerns all sales within a single type with inequality,
with or without delay.95
While riba al-nasi’a concerns all exchanges with delay among the
listed goods, with or without equality or identity of type.96
Figure 2.197
Ibn Rushd on riba
87
Vogel & Hayes 1998, p. 84 88
In this context the word ‘usury’ is used in the obsolete sense, meaning: ‘interest paid for the use of money’,
since it concerns one of the works of Ibn Rushd (1126 – 1198). For the rest of the study the word ‘usury’ will
indicate: ‘the lending or practice of lending money at an exorbitant amount or rate of interest, especially in
excess of the legal rate’. See: http://www.dictionary.com (last visited September 20, 2009) 89
Ibn Rushd 1994, p. 158 90
Ibn Rushd 1994, p. 158 91
The period of jahiliyya is the pre-Islamic age and this form of riba is prohibited, as they used to stipulate
excess in loans and then delay the period (of repayment). 92
Ibn Rushd 1994, p. 158 93
This form is called the da’ wa ta’ajjal. It can be seen as a discount granted for early repayment outstanding
debt, before the expiry of the stipulated period. See: Ibn Rushd 1994, p. 158 94
Ibn Rushd 1994, p. 158 95
Vogel & Hayes 1998, p. 74 96
Vogel & Hayes 1998, p. 74 97
Author’s own
Riba
Sales
Riba al-fadl Riba al-nasi’a
Liability through sale, credit, or
other transactions
Riba of the period of jahiliyya
Loss for hastening (the period)
- 13 -
Interest on loans is the forbidden riba al-nasi’a.98
The term ‘interest’ here is general and leads
to the claim that Islam does not accept the notion of a ‘time value of money’.99
There is much
discussion whether the term riba, which is derived from the Arabic root meaning ‘to grow’ or
‘to be in excess’, covers all forms of interest or refers only to exorbitant usury.100
Those who
suggest that it refers to the latter, base it on the belief that the true spirit of the ban on riba is
the goal of preventing exploitation of the weak.101
Indeed, one of the purposes being served
by this prohibition is the potential for rich creditors exploiting poor debtors, but this is not the
only purpose of the prohibition of riba. Furthermore, riba is also prohibited to avoid
injustice.102
‘Injustice’ here is a symmetric relation, which depends only on the lent sum and
not on the relative wealth of the parties, or their respective positions as creditor and debtor.103
Therefore, it is stated that all forms of interest is forbidden. Jurists have almost unanimously
forbidden commercial bank interest.104
One reason advanced for this, is that the Shari’a
countenances lending money as a charitable activity and not necessarily a profit making
venture.105
For modern Muslims jurists who believe that lending at interest is unlawful, the
doctrine of riba is viewed as a mean to achieve economic justice.106
Furthermore, money must
be used to create real economic value and it is only permissible to earn a return from investing
money in a permissible commercial activity which involves the financier or investor taking
some commercial risk.107
Riba is not a payment for taking risks, nor is it the reward for a
constructive activity.108
The prohibition of it indirectly leads to the prohibition of pure debt
security; instead of debt other forms of financing based on the principle of sharing of profit
and loss are recommended. So although Islamic banks cannot charge fixed interest in advance,
they operate by participating in the profit resulting from the use of bank funds.109
The concept
98
El-Gamal 2008, p. 29-58 99
Al-Sadr 1980; Mawdudi 1979 100
The existence of this discussion relies on the fact that it is not clear where it derives from. Riba comes from
the root rab-a meaning to increase (or exceed), while rib.h comes from the root rabi.ha meaning to gain (or
profit). For more on this discussion see: Lewis & Algaoud 2001, p. 35; Wilson 1991, p. 14 101
Saeed 1996, p. 41 102
Qur’an 2:278; Qur’an 2:279 103
So ‘injustice’ mentioned here is economical, indicating that there is no valid justification for any given
increase or diminution, thus such increase or diminution leads itself to injustice. See for more: El-Gamal 2008, p.
29-58 104
Al-Zuhayli 2003, p. 339-352 105
Moghul & Ahmed 2003, p. 168 106
Fadel 2008, p. 677 107
Hanif 2008, p. 10 108
Olson & Zoubi 2008, p. 47 109
Olson & Zoubi 2008, p. 47
- 14 -
of interest is replaced by profit and loss sharing, but a mark-up for delayed payments and
trade-financing commissions are allowed under the Islamic banking model.110
2.3.3.2 Gharar
Another important prohibition concerns the prohibition of gharar111
in contracts, which
means that there should not be uncertainty as to the subject-matter of a contract. A financial
contract should not lack specificity in its terms112
, i.e. in its sale price, deliverability, quantity,
quality, existence, etc.113
Therefore, open-ended terms and those that are deliberately
structured to convey more than one meaning are prohibited.114
In relation to conventional
finance, gharar exists, among others, in insurance, futures and options contracts.115
As
mentioned before, sharing the business risks is an important aspect within Islamic finance,
because that creates a balance between the parties and emphasises fairness. Business risks that
are generated by financial and commercial factors are allowed as long as the parties to the
transaction have advanced knowledge of the elements which constitute the transaction.116
The
rationales for prohibiting gharar include mitigating disputes over the interpretation of
contacts and mitigating problems arising from asymmetric information, so that injustice and
inequity does not fall on the ill-advised contracting party from the outset.117
However, a
transaction with minimal gharar could be valid, because the Shari’a acknowledges the
impossibility of totally eradicating gharar.118
For gharar to invalidate a contract: (1) such
gharar must be excessive and not trivial; (2) it must pertain to the subject of the matter of the
sale; and (3) society must not be in need of the contract in question.119
The latter explains why
forward sale (salam), manufacture (istisna’), and leasing (ijarah) contracts have traditionally
been permitted under Islamic law, despite the arguable presence of gharar in these
contracts.120
110
Olson & Zoubi 2008, p. 47 111
Quran 2:90; Qur’an 2:91 112
DeLorenzo (Islamic Finance: Innovation and Growth) 2002, p. 22 113
Archer & Karim (Islamic Finance: Innovation and Growth) 2002, p. 3; IOSCO 2004 114
Ahmed (Islamic Finance: Innovation and Growth) 2002, p. 109 115
Jabbar 2009, p. 24 116
Saleh & Ajaj 1992, p. 81 117
Saleh & Ajaj 1992, p. 80-81; Archer & Karim (Islamic Finance: Innovation and Growth) 2002, p. 3 118
Fadeel (Islamic Finance: Innovation and Growth) 2002, p. 91; IOSCO 2004 119
Moghul & Ahmed 2003, p. 171-172 120
Kamali 2000, p. 85; Al-Zuhayli 2003, p. 385
- 15 -
2.3.3.3 Mayseer and Qimar
Mayseer and qimar are also prohibited under the Shari’a.121
Mayseer concerns a transaction,
where something is gained by purely speculation and not by productive effort.122
Qimar
includes every form of gain of money, the acquisition of which purely depends on luck and
chance.123
Speculation or gambling exists whereby two or more parties each undertake the
risk of a loss where a loss for one means the gain for the other.124
This is prohibited, because
it involves an attempt to make profit and amass wealth without putting in any productive
effort.125
Conventional future contracts and equity derivatives have the element of mayseer.126
However, general commercial speculation in genuine commercial transactions, which take
place in a situation whereby a financier makes an investment in a Shari’a-compliant business
and speculates for a return for the investment, is not prohibited under the Shari’a.
2.3.4 Islamic financial contracts and structures
Islamic financial contracts can be subdivided into two categories: (1) transaction contracts,
which concern transactions in commodities and the financing of economic activities, and (2)
intermediation contracts, which promote the efficient and transparent execution of the
transaction contracts.127
For a schematic overview of these contracts and the Islamic financial
structures see Annex B. The four most common Islamic financial structures will be discussed
below.
2.3.4.1 Murabaha
Murabaha contracts are contracts which include a mark-up, i.e. a profit margin is added to the
purchase price in order to make profit, so there is a difference between the purchase price of
the asset and its selling price. In Islamic financial transactions these contracts are used as an
alternative for loans. In the murabaha contract, the buyer knows the purchase price and agrees
to pay a profit margin to the bank.128
The bank is not compensated for the time value of
money outside of the contracted profit margin.129
This concept is widely utilized in Islamic
mortgage transactions: instead of loaning the money to the buyer to purchase property, the
121
Qur’an 2:219; Qur’an 5:90 122
Hanif 2008, p. 10 123
Ayub 2008, p. 112 124
IOSCO 2004 125
IOSCO 2004 126
Hanif 2008, p. 10; Jabbar 2009, p. 25 127
Verhoef, Azahaf & Bijkerk 2008, p. 13 128
El-Gamal 2000, p. 10-11 129
Qadri 2008, p. 60
- 16 -
bank might buy the property itself from the seller, and then re-sell it to the buyer at a profit,
while allowing the buyer to pay the bank in instalments.130
There are no additional penalties
for late payment, and therefore, the bank requires strict collateral.131
Notice that in this
contract, the bank must own the item at the time the customer buys it from them with the
specified profit margin.132
Afterwards, the good or land is registered in the name of the buyer,
and accordingly, the buyer is in fact able to benefit and receive tax credits.133
The concept of
cost plus sales in murabaha is not considered as interest and, therefore, justified from an
Islamic perspective, because (1) the financier shares in the risk, such as theft or damage to the
property, since it owns the property for a short time; (2) the financier acts as an agent in the
trades sale; and (3) the object of the trade sale is not money, but a property.134
2.3.4.2 Mudarabah and musharaka
Mudarabah and musharaka are forms of partnership. Financing through mudarabah, which
can be viewed as ‘venture capital’, and musharaka, which is commonly referred to as ‘joint
venture’, means participation in the business by the financier.135
Profits, determined as a
proportion or percentage, will be distributed among the partners on the basis of the proportion
settled by them in advance.136
The profit sharing continues until the entrepreneur becomes the
complete owner of the business, which often takes the form of a buy-out of the interest of the
financing entity.137
In a mudarabah contract the financing entity, which is called rab-al-maal,
provides the funding for the business venture; and the entrepreneur, the so called mudarib,
provides expertise, labor, and management.138
While the financial investment by each party
may be unequal in a musharaka contract, each partner retains an equal right to management
and participation in the business.139
Another important difference between the mudarabah
contract and the musharaka contract concerns the fact that in a mudarabah contract the rab-
al-maal bears all the losses, because the mudarib does not invest anything. One should not
130
Qadri 2008, p. 60 131
Qadri 2008, p. 60 132
El-Gamal 2000, p. 10-11 133
Tax credit refers to (1) a recognition of partial payment already made towards taxes due; or (2) to a state
benefit paid to workers through the tax system. Both concepts are not known in the Netherlands, so it is not
relevant for the Dutch legal context. However, the fact that the asset is registered in the name of the buyer is also
important in the Netherlands, because this is relevant for the deductibility of the profit mark-up as a cost of home
financing – the so called eigenwoningschuld - due to the Income Tax Act 2001 (Wet Inkomstenbelasting 2001).
For more on this see: Muller & Hooft 2008a. 134
El Idrissi 2008, p. 41 135
Usmani 2002, p. 17 136
Qadri 2008, p. 59-60 137
Qadri 2008, p. 59-60 138
Qadri 2008, p. 59-60 139
Qadri 2008, p. 59-60
- 17 -
overlook the fact that the mudarib sustains the loss of the time and the effort he has put in the
venture.140
Furthermore, the mudarib shall be liable for the loss caused by his negligence or
misconduct, if he has worked with negligence or has committed dishonesty.141
Meanwhile, in
a musharaka contract each financier must share the loss incurred by the business to the extent
of his financing.142
This concept reflects the Islamic view that there should be a balance
between the parties: the borrower must not bear all the risks of a failure, and the lender must
not receive all the profits.143
2.3.4.3 Salam and istisna’
These contracts are Islamic forward contracts. The sale of non-existent objects is forbidden,
because of the prohibition on gharar. However, there are two contracts which form an
exception: salam and istisna’. In a salam contract, a buyer pays immediately for a commodity
or other fungible good, which the seller will deliver at a specified future date.144
An istisna’
contract involves the forward purchase of a good to be manufactured to certain
specifications.145
The price is paid in instalments as the work progresses in manufacturing the
otherwise non-existent object.146
2.3.4.4 Ijarah and ijarah-wa-iqtina
Ijarah and ijarah-wa-iqtina contracts are comparable to leasing contracts. Legally, a lease
contract is not the sale of the object, but rather the sale of the usufruct147
for a specified period
of time.148
The sale of usufruct is permissible in Islam.149
The leasing agency must own the
leased object for the duration of the lease in an ijarah contract.150
Under an ijarah contract,
the bank makes available to the customer the use of an asset for a fixed period against agreed
upon rental.151
The corpus of the leased property remains the ownership of the lessor, and
only its usufruct is transferred to the lessee.152
Thus, all the liabilities emerging from the
ownership shall be borne by the lessor, but the liabilities referable to the use of the property
140
De Vries Robbe & Ali 2005, p. 365 141
Usmani 2002, p. 13 142
Usmani 2002, p. 17 143
Qadri 2008, p. 59-60 144
Vogel & Hayes 1998, p. 220 145
Vogel & Hayes 1998, p. 220 146
El-Gamal 2000, p. 17 147
The word ‘usufruct’ here indicates the right to use an object. 148
El-Gamal 2000, p. 13-14 149
Qur’an 28:26; Qur’an 28:27; Qur’an 65:6 150
El-Gamal 2000, p. 13-14 151
Ayub 2008, p. 280 152
Usmani 2002, p. 70-71
- 18 -
shall be borne by the lessee.153
Another well-known contract is the ijarah-wa-iqtina, under
which a bank provides assets to the client under an agreed rental, together with a unilateral
undertaking by the bank or the client where at the end of the lease period, the ownership in
the asset would be transferred to the lessee.154
3. SUKUK
3.1 Introduction to Sukuk
In the light of the prohibition of riba under the Shari’a, pure debt instruments are forbidden in
Islam and, therefore, sukuk are structured to generate the same economic effects as
conventional bonds, but in a Shari’a-compliant manner.155
The word sukuk is the plural of
sakk and the latter represents an undivided interest in an asset.156
Sukuk reflect participation in
the underlying tangible assets, so that what is being traded is not mere a debt.157
This term is
recognized in traditional Islamic jurisprudence.158
Sukuk are entitlement to rights in certain
assets inclusive of some degree of ownership.159
For sukuk structure to comply with Shari’a,
the underlying assets must themselves also comply with Shari’a, which means that they
should be halal.160
The structures of different sukuk are based on the Islamic financial
contracts, as outlined in the previous paragraph. Both government- and corporate sukuk can
be issued. The following paragraph will discuss sukuk structures to illustrate how sukuk works.
Since these instruments are often compared to bonds, in the last paragraph of this paragraph
sukuk will be compared to bonds.
3.2 Sukuk Structures
The AAOIFI recognizes fourteen different types of sukuk.161
Since there are fourteen possible
structures, it is not possible to find one overarching legal solution for all types of sukuk and,
153
Usmani 2002, p. 70-71 154
Qadri 2008, p. 60-61 155
Ainley et al. 2007, p. 24 156
Adam & Thomas 2004, p. 42 157
Iqbal & Mirakhor 2006, p. 177; Saqqaf 2006, p. 19 158
More on this see: Adam & Thomas 2004, p. 42-48 159
Allen & Overy 2003 160
Box & Asaria 2005, p. 22; McMillen 2006, p. 427-429 161
The fourteen sukuk structures are: sukuk al-ijarah, sukuk ijarah-mowsufa-bithima, sukuk manfaa-ijarah,
sukuk manfaa-ijarah-mowsufa-bithima, sukuk milkiyat-al-khadamt, sukuk al-salam, sukuk al-istisna’, sukuk al-
- 19 -
therefore, these instruments need to be examined on a case-by-case basis.162
Most of the
structures are Shari’a-compatible for trading in the secondary market163
, except the salam,
istisna’ and murabaha sukuk.164
These forms of sukuk cannot be traded in the secondary
market, because these contracts create debt as a result of the salam-, istisna’-, and murabaha-
based sale.165
It will be too long-winded and outside the scope of this research to describe the
complete structure of these three forms, but for the point made it is important to know that in
these structures there is no (degree of ownership in the) underlying asset and, therefore, the
payments are not cash flows from an asset or a business, but they are merely debts. Since it is
not allowed to trade in debts due to the prohibition on riba, these forms of sukuk cannot be
traded in the secondary market. Otherwise, that would lead to dealing with riba while trading
in securities and riba is prohibited by the Shari’a. On that account, merely sukuk al-ijarah
will be described in this paragraph. The UK preferred, and therefore examined, this structure
to form the basis of a government sovereign sukuk issue.166
Furthermore, most of the
corporate sukuk issues in the UK are structured through the sukuk al-ijarah structure. Sukuk
structures are based on English concepts. Typically, the vast majority of internationally traded
contracts are drafted so that English law applies.167
English law dominates the world of
international finance168
and, consequently, English structures are also used in sukuk
transactions. The UK plays a major role in the Islamic finance market as well, thus English
concepts are used for the legal structures of sukuk, as will be outlined below.
3.2.1 Sukuk al-ijarah
This structure is based on the ijarah contract.169
As mentioned in the previous paragraph, an
ijarah contract allows the transfer of usufruct of an asset in return for rental payment; as such
it is similar to a conventional lease contract.170
Basically, under the sukuk al-ijarah structure
the Special Purpose Vehicle (SPV) holds the assets in trust for the sukuk holders. Figure 3.1
murabaha, sukuk al-musharaka, sukuk al-mudarabah, sukuk al-wakala, sukuk al-muzra’a, sukuk al-musaqa,
sukuk al-muqarasa. For more on these structures see: Lahlou & Tanega 2007, p. 367-368 162
Ainley et al. 2007, p. 25 163
The secondary market is the financial market where previously issued securities and financial instruments,
such as stocks, bonds, shares, and also sukuk, are bought and sold. See: http://www.businessdictionary.com/ (last
visited September 20, 2009) 164
Some particular cases of muzaraah and musaqah sukuk also are not Shari’a-compatible for trading in the
secondary market, when the sukuk holder does not own the land. For more see: Iqbal & Mirakhor 2006, p. 181 165
Iqbal & Mirakhor 2006, p. 181 166
HM Treasury 2007, p. 17-19 167
Islamic Finance Resources 2009 168
Wood 2008, p. 15-28 169
Iqbal & Mirakhor 2006, p. 182 170
HM Revenue & Customs 2008, p. 20; HM Treasury 2007, p. 17
- 20 -
illustrates the structure of sukuk al-ijarah. In this structure the SPV purchases certain assets
from the originator, as the seller of these assets, at an agreed predetermined purchase price. In
order to finance the purchase, the SPV issues sukuk to sukuk holders, who are the investors.
These sukuk are based on the underlying assets that the SPV has acquired rather than being
debt securities, which is the case with the issuance of conventional bonds.171
The SPV uses
the sukuk proceeds to pay the originator. Afterwards, a lease agreement between the originator
and the SPV is signed for a fixed period of time. Under this lease agreement the originator
leases back the assets as lessee. Consequently, the SPV receives periodic rentals from the
originator as lessee. And the SPV uses these amounts to pay the periodic return to the sukuk
holders, who will have a certain degree of ownership in the underlying asset. At maturity, the
originator purchases back the assets from the SPV at a predetermined value. The originator
gets back the beneficial title to the assets. And the SPV can pay the sukuk holders their capital
back, which allows the sukuk certificates to be redeemed. So sukuk al-ijarah uses this leasing
contract as the basis for the returns paid to investors, who are the beneficial owners of the
underlying asset and as such benefit from the lease rentals as well as sharing in the risk.172
Figure 3.1173
Structure of sukuk al-ijarah
The sukuk al-ijarah is the most important structure. The AAOIFI stated that sukuk al-ijarah is
the most Shari´a-compliant form of sukuk.174
As mentioned before, AAOIFI standards are
widely followed across many countries, so this statement is very valuable. Furthermore,
Moody’s reported that sukuk al-ijarah was the dominant sukuk structure in terms of issuance
171
HM Revenue & Customs 2008, p. 20; HM Treasury 2007, p. 17 172
HM Revenue & Customs 2008, p. 20; HM Treasury 2007, p. 17 173
Author’s own 174
AAOIFI Shariah Board 2008
Transfer of assets
& sukuk proceeds
Sukuk issuance
& sukuk proceeds
Lease back &
periodic rentals
Originator
Periodic payments
SPV Sukuk holders
- 21 -
volume in 2008, replacing mudarabah which was the dominant structure in 2007.175
Most of
the corporate sukuk in the UK has been structured through the sukuk al-ijarah, since it was
suggested that it is the most suitable model to be adopted in the UK. This shows the
importance of the sukuk al-ijarah and justifies the choice for it to be structured in the
Netherlands, which will happen in the next paragraph.
3.3 Sukuk and Conventional Bonds
3.3.1 Similarities between sukuk and conventional bonds
When comparing sukuk with conventional bonds, one will find some generic features. First of
all, virtually all sukuk issued today, like bonds, guarantee the return of the principal when
redeemed at maturity, regardless whether the enterprise was profitable.176
This is
accomplished by means of a binding promise from either the issuer or the manager to
repurchase the assets represented by the sukuk at the stated price at which these were
originally purchased by the sukuk holders at the beginning of the process, regardless of their
true market value at maturity.177
This practice is only lawful if the resale takes place on the
basis of the net value178
of the assets or at a price that is agreed upon at the time of
purchase.179
Moreover, sukuk are, like conventional bonds, versatile. The variety of sukuk structures that
are defined in the AAOIFI standards: (1) allow for structuring across legal and tax domains of
products that meet diverse financing needs; (2) may offer fixed and variable income options;
(3) may achieve cross-listing capabilities; and (4) are compatible with global bond
regulations.180
The AAOIFI recognizes fourteen different types of sukuk and that illustrates
the versatility of sukuk as well.
3.3.2 Differences between sukuk and conventional bonds
There are three main differences between sukuk and conventional bonds. First of all, a bond is
a contractual debt obligation whereby the issuer is contractually obliged to pay the
175
Moody’s Global Credit Research 2009 176
Usmani 2008, p. 4 177
Usmani 2008, p. 4 178
So unlike conventional bonds, the repurchase of assets at face value is not allowed and is considered unlawful. 179
Usmani 2008, p. 14 180
Dar Al Istithmar 2006, p. 7; Adam & Thomas 2004, p. 53
- 22 -
bondholders interest and principal.181
This differs from sukuk, since sukuk holders each hold a
beneficial ownership in the underlying assets.182
Bonds do not represent ownership on the part
of the bond holders in the commercial or industrial enterprises for which the bonds were
issued.183
Consequently, sukuk holders are entitled to share in the revenues generated by the
sukuk assets as well as being entitled to share in the proceeds of the realization of the sukuk
assets.184
However, the market has witnessed a number of sukuk in which there is doubt
regarding their representation of ownership recently, e.g. the assets in sukuk may be shares of
companies that do not confer true ownership but which merely offer sukuk holders a right to
returns.185
Another difference concerns the fact that in sukuk structures, financial instruments, including
debts, may not be assigned to other persons unless there are underlying tangible assets.
Therefore, a SPV needs to hold the underlying tangible assets in order to issue sukuk.186
So
sukuk are financial instruments that are backed by certain specific assets, while bonds are
backed by all assets of a company.187
This means that bonds can also be issued by an issuer
who merely owns debt. This is not possible for sukuk, because there must always be
underlying tangible assets which will be transferred to a SPV, who will hold them in trust for
the sukuk holders. Initially, these instruments were viewed as ‘asset-backed’ debt instruments,
but some practitioners think sukuk are ‘asset-based’ rather than ‘asset-backed’.188
Lastly, while bonds create a lender-borrower relationship, the relationship in sukuk depends
on the nature of the contract underlying the sukuk, e.g. the ijarah contract creates a lessee-
lessor relationship.189
181
Dar Al Istithmar 2006, p. 7; Cakir & Raei 2007, p. 4 182
Dar Al Istithmar 2006, p. 7; Cakir & Raei 2007, p. 4 183
Usmani, p. 3 184
Dar Al Istithmar 2006, p. 7 185
Such sukuk are no more than the purchase of returns from shares, and this is not lawful from a Shari’a
perspective. Likewise, there has been a proliferation of certain sukuk that are based on a mix of ijarah, istisna’
and murabaha contracts undertaken by Islamic banks such that these are packaged and sold to sukuk holders who
hope to obtain the returns from these operations. However, the inclusion of murabaha contracts into such sukuk
brings into question the issue of sale of debt and, generally speaking, the sale of debt is prohibited under the
Shari’a. For more see: Usmani 2008, p. 3 186
It is not enough that the entity holds someone to the promise to pay the debt. For more see: Joseph 2007, p. 70 187
Joseph 2007, p. 70 188
Ainley et al. 2007, p. 25 189
Iqbal & Mirakhor 2006, p. 178
- 23 -
4. SUKUK AL-IJARAH IN THE NETHERLANDS
4.1 Requirements of Sukuk al-Ijarah
This paragraph deals with the legal structure of sukuk in the Netherlands. When structuring
sukuk al-ijarah in the Netherlands, one has to bear in mind certain Shari’a and transactional
requirements. The first paragraph of this paragraph will deal with the requirements which are
important for a sukuk al-ijarah transaction from a Shari’a perspective. This concerns the
prohibition on riba and other principles of Islamic finance which are important for the sukuk
al-ijarah. Furthermore, the transactional requirements of a sukuk al-ijarah transaction will be
discussed. This includes the valid transfer of the assets to the SPV and the bankruptcy
remoteness of the SPV. The second paragraph describes the legal structure of sukuk al-ijarah
in the Netherlands. This is important, because it deals with the qualification of sukuk al-ijarah
in the Dutch legal context. Issues such as the ‘sale-and-lease-back’ (SALB) of the tangible
assets from the originator to the SPV and the issuance of sukuk by the SPV, whereby the
position of the SPV acting as a trustee for the sukuk holders, will be dealt with.
4.1.1 Shari’a requirements of sukuk al-ijarah
Paragraph one already discussed the most important principles of Islamic finance. The most
relevant and important principles for the sukuk al-ijarah structure will be discussed in order to
illustrate which requirements the structure must meet under the Shari’a. The most important
Islamic principle for the sukuk al-ijarah transaction – and probably for Islamic finance as a
whole – is the prohibition of riba. This will be discussed firstly, followed by other important
principles.
4.1.1.1 Prohibition on riba
The prohibition on riba can be divided into two important aspects for the sukuk al-ijarah
transaction. The first concerns the prohibition of interest. This means that interest is forbidden
in the whole structure. In the sukuk al-ijarah structure there are two transactions which can
contain interest: (1) the lease payments from the originator to the SPV; and (2) the periodic
payments from the SPV to the sukuk holders, which is comparable to interest in a regular
bond. Both interest payments are forbidden under the Shari’a, because of the prohibition on
riba. Secondly, the prohibition on riba indirectly leads to the prohibition of pure debt security,
as has been discussed in paragraph one and two. Therefore, pure debt instruments are
- 24 -
forbidden. Money must be used to create real economic value and the trade in claims and
receivables is not allowed. Consequently, debts may not be assigned to other persons and
there must be underlying tangible assets in the transaction. This means that the SPV needs to
hold underlying tangible assets in order to issue sukuk.
4.1.1.2 Other principles
Furthermore, there are three relevant principles that lead to requirements which should be met
for a sukuk al-ijarah structure to be Shari’a-compliant. The first one concerns the prohibition
of gharar, which refers to the prohibition of uncertainties. This means that a transaction
cannot be contingent on the occurrence of another transaction because this would lead to
uncertainties. This is relevant at the point of the SALB of the assets between the originator
and the SPV and the buy-back of the assets by the originator from the SPV at maturity. The
next paragraph will discuss this in more detail. Another important requirement is that the
underlying tangible assets should be halal and should not be involved in or meant for haram
activities. These prohibited activities refer to investments relating to, amongst others, alcohol,
pork, armaments and military technology, pornography and prostitution, and gambling. But to
a certain extent also any financing to conventional businesses, which are not Shari’a-
compliant. Paragraph one discussed this Islamic principle clearly. The last, and most
distinctive, Islamic principle for sukuk al-ijarah under the Shari’a concerns the requirement
that sukuk holders most hold some degree of ownership in the underlying tangible assets. It is
important to stress that sukuk transactions should create a beneficial ownership interest for the
sukuk holders in the underlying assets.190
Therefore, mostly the SPV functions as a trust,
whereby the SPV becomes the legal owner of the underlying assets and the sukuk holders
become the beneficial owners. The Shari’a merely requires some degree of ownership for the
sukuk holders in the underlying tangible assets and it is sufficient if the sukuk holders are the
beneficial owners of the underlying tangible assets. This can be realised through certification,
since certification is an instrument which creates a situation whereby the legal owner holds
the assets in favour of the beneficial owner.191
Furthermore, the scope of the charter of the
Dutch foundation known as a stichting (foundation) contains the obligation that the SPV must
hold the assets in favour of the sukuk holders.192
Both aspects are creating the beneficial
190
Abdel-Khaleq & Richardson 2006, p. 418-419 191
Van der Grinten & Teurniet 1964, p. 7; Van der Grinten & Teurniet 1964, p. 86-87 192
Uniken Venema & Eisma 1990, p. 335; Reehuis et al. 2006, p. 98; Snijders & Rank-Berenschot 2007, p. 164
- 25 -
ownership for the sukuk holders and are discussed in more detail in the following paragraph.
For an Islamic perspective, these requirements must be met in a sukuk al-ijarah transaction.
4.1.2 Transactional requirements of sukuk al-ijarah
As mentioned above, the SPV is mostly a trust in a sukuk al-ijarah structure. From a
transactional perspective, this has the benefits that two important transactional requirements
are met. This subparagraph discusses those requirements. First of all, a valid transfer/true sale
of the assets from the originator to the SPV is discussed followed by the bankruptcy
remoteness of the SPV. These are both important transactional requirements, which should be
considered in a sukuk al-ijarah structure.
4.1.2.1 Valid Transfer/True Sale
In the context of a sukuk al-ijarah structure, there needs to be a true sale of the assets by the
originator to the SPV, which issues sukuk.193
‘True sale’ is the official term for guaranteeing
that the transfer of rights and receivables is legal, valid, binding, and enforceable.194
The true
sale doctrine refers to the question whether the SPV owns the transferred assets.195
So the
main question is: is there a valid transfer of the assets from the originator to the SPV?196
This
question is essential from a Dutch legal perspective as well, although the true sale doctrine
does not exist in the Netherlands. The transfer should be such that the creditors of the
originator or (in case of bankruptcy) its trustee, will not be able to challenge the title of the
transfer.197
Neither should a court be able to avoid it in bankruptcy or other insolvency
proceedings.198
Courts sometimes avoid a transfer in bankruptcy or insolvency procedures.
One can think of a fraudulent transfer in anticipation of bankruptcy or a preference payment.
Basically, the bankruptcy or insolvency of the originator should not affect the transfer of the
assets to the SPV.199
Therefore, the most secure way to deal with the matter is to meet all the
requirements for a valid transfer of the assets from the originator to the SPV. In the
Netherlands this requirement can be met by meeting the three conditions for a valid transfer
under section 3:84 (1) CC. This will be outlined in the next paragraph.
193
Abdel-Khaleq & Richardson 2006, p. 418-419 194
Risk 2007 195
McMillen 2006, p. 452-453; Archer & Karim 2007, p. 176-178 196
Schaafsma et al. 1996, p. 93 197
Schaafsma et al. 1996, p. 93 198
McMillen 2006, p. 452-453; Schaafsma et al. 1996, p. 93 199
Schaafsma et al. 1996, p. 93
- 26 -
4.1.2.2 Bankruptcy Remoteness
Concerning the bankruptcy remoteness of the SPV, one has to concentrate on a reduction of
the risk of bankruptcy.200
Bankruptcy considerations weigh heavily, because the bankruptcy
of the SPV in many jurisdictions would mean that the assets of the SPV would be distributed
in accordance with the law or a court order instead of in accordance with the contractual
arrangements.201
Moreover, there can be obligatory stay provisions pending the SPV
bankruptcy, which consequently would interfere with timely payment of the sukuk.202
Finally,
bankruptcy proceedings would lead to additional costs such as the costs of liquidation of the
assets and of the salary of the insolvency official. It is therefore important to structure the
transaction such that initiating a bankruptcy proceeding against the SPV would be as unlikely
as possible.203
In jurisdictions where a trust concept is known, the SPV in the sukuk al-ijarah
transaction functions as a trust. In that case, creditors of the bankrupt SPV will have no
recourse to the trust assets, because the SPV holds the assets in trust for the sukuk holders.204
However, jurisdictions that do not avail of a trust concept, such as the Netherlands, should
structure the transaction such that initiating a bankruptcy proceeding against the SPV would
be as unlikely as possible and that is sufficient to create a sukuk al-ijarah transaction, which
will function properly. In the Netherlands this can be realised with a strictly formulated scope
of charter of a foundation, which will have a limited statutory purpose to limit the bankruptcy
risks of the SPV and make its bankruptcy as unlikely as possible. This will be discussed in the
following paragraph.
4.2 Sukuk al-Ijarah in the Netherlands
When studying the sukuk al-ijarah structure one will notice that it is constructed by
transactions that raise certain legal issues from a Dutch legal perspective. As mentioned in the
previous paragraph, the originator starts the structure by selling tangible assets to the SPV,
whereupon the SPV leases the tangible assets back to the originator. These two legal acts
form a SALB transaction between the originator and the SPV. The legal elaboration will be
discussed in this paragraph. Furthermore, it is important to qualify the issuance of sukuk in the
Dutch legal context. The SPV plays a major role in the sukuk al-ijarah structure, because it
200
McMillen 2006, p. 452-453; Archer & Karim 2007, p. 176-178 201
McMillen 2006, p. 452-453; Archer & Karim 2007, p. 176-178; 202
Abdel-Khaleq & Richardson 2006, p. 418-419; McMillen 2006, p. 452-453; Archer & Karim 2007, p. 176-
178 203
McMillen 2006, p. 452-453; Archer & Karim 2007, p. 176-178 204
Abdel-Khaleq & Richardson 2006, p. 418-419
- 27 -
holds the tangible assets in trust for the sukuk holders, after the issuance of sukuk. Both of
these aspects will be discussed below.
4.2.1 Sale-and-lease-back
4.2.1.1 The sale of the assets to the SPV in the Netherlands
The first transaction in a sukuk al-ijarah structure concerns the sale of tangible assets from the
originator to the SPV. Once the SPV becomes the owner, it leases the assets back to the
originator. This is a SALB transaction. When facilitating sukuk al-ijarah in the Netherlands,
one has to examine how this can be structured. In sukuk transactions, the originators are often
governments or big corporations, but they could also be banking or non-banking (Islamic)
financial institutions.205
The assets must be of a nature that its halal use is possible.206
The
originator sells tangible assets to the SPV and, as discussed above, this has to be a true sale.
Therefore, it is important that there is a valid transfer of the assets from the originator to the
SPV. Section 3:84 (1) of the Dutch Civil Code (CC) (Burgerlijk Wetboek) contains the
requirements for a valid transfer. Due to section 3:84 (1) CC there has to be (1) a valid title,
which means that the transaction should be based on a valid legal ground; (2) the party that
delivers the assets must have the right to dispose of the assets; and (3) there has to be a
delivery of the assets. All three requirements must be met in order to constitute a valid
transfer. The requirement of a valid title indicates that the Netherlands has a causal transfer
system.207
In a sukuk al-ijarah transaction, the valid title is the purchase agreement between
the originator and the SPV, due to which the originator sales the assets to the SPV.
Furthermore, the originator must have the right to dispose of the assets; so the originator must
be the owner of the assets and, therefore, have the property right of the assets. The last
requirement concerns the delivery and this is the most important requirement. The delivery
formalities depend on whether the assets are movable property or immovable property. First
the movable property will be discussed. Due to section 3:90 CC and section 3:115 CC the
delivery takes place by possession provision. In a sukuk al-ijarah transaction, the delivery of
movable property can be best structured by the constitutum possessorium delivery (CP-
delivery) in accordance with section 3:115 (a) CC. Constitutum possessorium literary means
‘ownership statement’ and it refers to statement of the transferor to hold the assets for the
205
Ayub 2008, p. 393 206
Usmani 2002, p. 98 207
Peter 2007, p. 1; Van Vliet (Elgar encyclopedia of comparative law) 2006, p. 730
- 28 -
transferee and not for himself anymore.208
For a CP-delivery, section 3:115 (a) CC requires
merely a bilateral statement without handing over the property. Since the assets will be leased
back by the originator in a sukuk al-ijarah structure, this form of delivery is most convenient.
So as a result of the CP-delivery, the originator can keep the assets in its possession and the
originator will hold it for the SPV, because the SPV is the owner after the valid transfer. In
this way a valid delivery of the movable property is realized and, therefore, a valid transfer is
achieved. However, mostly the transferred assets in a sukuk al-ijarah transaction will be
immovable property. Section 3:89 CC describes the requirements for the delivery of
immovable property. Section 3:89 CC requires (1) a notarial act or a deed of transfer and (2)
the registration of this deed in the public land registers. Meeting these two requirements will
lead to a valid delivery of the immovable property. After meeting the above mentioned
requirements, a valid transfer of the assets from the originator to the SPV is realized; this
means that the assets are sold to the SPV. The true sale is finalized and then the second part of
the first transaction of sukuk al-ijarah starts, which is the lease back of the assets from the
SPV to the originator.
4.2.1.2 The lease back of the assets to the originator
Firstly, one has to determine what the legal qualification of ‘lease’ is. ‘Lease’ is an economic
concept and although it seems associated with rental, it is not easy to legally qualify ‘lease’.209
The concept of lease can be divided in operational lease and financial lease. An operational
lease is more comparable with rental due to section 7:201 CC and the risks and liabilities
connected to the assets belong to the lessor.210
A financial lease is more comparable with hire-
purchase due to section 7A:1576h CC and the risks and liabilities connected to the assets
belong to the lessee.211
In case of an ijarah-contract, the lessor bears the risks of damage or
liabilities. It is possible to agree with the lessee that the lessee will be liable for the loss or
damages which occur due to the usage, but the lessor bears all the regular risks of loss or
damages.212
Therefore, sukuk al-ijarah tends to be comparable to the operational lease, which
can be qualified as rental due to section 7:201 CC.213
The main difference with the ijarah-wa-
iqtina contract, which is comparable with the financial lease and the Dutch hire-purchase
agreement due to section 7A:1576h CC, is that at maturity the originator has to pay a
208
Reehuis et al. 2006, p. 197 209
Reehuis et al. 2006, p. 743 210
Reehuis et al. 2006, p. 743-744 211
Reehuis et al. 2006, p. 743-744 212
Van Rossum 2009, p. 364 213
Reehuis et al. 2006, p. 743-744
- 29 -
purchase price to buy the assets back.214
While in the ijarah-wa-iqtina contract, and also in a
hire-purchase agreement due to section 7A:1576h CC, at maturity the originator being the
lessee gets the assets free of charge or for a nominal amount that does not reflect the true
value of the assets at such time.215
So the lease back of the assets from the SPV to the
originator in a sukuk al-ijarah structure can be qualified as the Dutch rental agreement under
section 7:201 CC in the Netherlands.216
One consideration is the prohibition of riba and,
therefore, it is not possible to charge interest in this rental agreement. However, just like in a
Western lease, the amounts of the lease installments are based on the investment plus the
profit mark-up, which in general is fixed based on the reference interest rate such as
LIBOR.217
Furthermore, the prohibition of gharar does not allow a transaction to take place
under the condition that another transaction must take place too, because of future
uncertainties.218
Therefore, the obligation to sell the assets back to the lessee, which is a
binding promise called wa’d, is often laid down in another separate document of the lessor to
sell the assets back.219
4.2.1.3 The sale-and-lease-back transaction
Another aspect in the Dutch legal context that needs to be discussed in regard to the SALB
transaction concerns section 3:84 (3) CC. Section 3:84 (3) CC contains the ‘fiducia-
prohibition’, which refers to the prohibition of unregulated forms of security interests such as
the ‘fiduciary transfer of ownership’. Two categories of titles are prohibited by section 3:84 (3)
CC. The first one is related to the fiduciary security, as it prohibits the transfer of ownership
for security purposes.220
The second once concerns the title which derives from a legal act
which does not have the purpose to transfer the assets to the estate of the transferee. The first
category is relevant when it comes to the sukuk al-ijarah transaction, because this type of
transaction includes a SALB. Section 3:84 (3) CC prohibits the fiduciary security, but the
legislator compensated the prohibition of fiduciary security with the introduction of a general
214
Van Rossum 2009, p. 364 215
Van Rossum 2009, p. 364 216
The Temporary Property Hire Purchase Act (Tijdelijke Wet Huurkoop Onroerende Zaken) is not relevant for
the sukuk al-ijarah transaction, because the lease back of the assets in the sukuk al-ijarah is an ijarah and can be
qualified as a rental agreement due to section 7:201 CC and it cannot, unlike an ijarah-wa-iqtina, be qualified as
a hire-purchase agreement due to section 7A:1576h CC. 217
Van Rossum 2009, p. 364 218
Van Rossum 2009, p. 364 219
Van Rossum 2009, p. 364 220
De Groot (Rules for the Transfer of Movables: A Candidate for European Harmonisation or National
Reform?) 2008, p. 171
- 30 -
right of non-possessory pledge in accordance with section 3:237 CC.221
Meijers222
proposed
to create a non-possessory security interest and, therefore, objected to the existence of two
parallel security rights.223
There was uncertainty regarding the question whether a SALB
transaction was prohibited by section 3:84 (3) CC in the Netherlands. In a SALB transaction
the title of sale is used to give the lessor security for the payment of the complete lease price
in the form of ownership, while in spite of the sale and the transfer of the assets to the lessor,
the economic and legal risk of the assets remains with the lessee.224
Nevertheless, the Dutch
Supreme Court decided in a landmark case called the ‘Keereweer q.q. v. Sogelease’ case that
the SALB transaction is not prohibited under section 3:84 (3) CC as long as the scope of the
transaction is a true transfer of property and it, therefore, transfers the assets to the transferee
without any limitation.225
It would be prohibited if it was used to give the transferee merely
security to protect his right as a creditor, since parties are supposed to use the right of pledge
or right of mortgage in that case.226
Section 3:92 CC (reservation of title) and section
7A:1576h CC (hire-purchase) also indicate that transactions such as SALB are allowed under
Dutch law.227
In a sukuk al-ijarah the scope of the transaction is a true and valid transfer of
the assets from the originator to the SPV. As discussed above, the true sale or valid transfer is
even an important aspect of sukuk al-ijarah. The transfer of the assets from the originator to
the SPV has no limitations. Neither is the transfer used merely to give the SPV a security to
protect his right as a creditor. Therefore, one can conclude that the SALB transaction in the
sukuk al-ijarah structure will be permitted under Dutch law.
It is worth mentioning that the beneficial ownership of the sukuk holders is not realised
through the transfer of the assets from the originator to the SPV. As will be discussed in more
detail later on, the beneficial ownership of the sukuk holders will be realised through the
scope of charter of the foundation and through certification of the underlying assets. Since
section 3:84 (3) CC concerns the transfer of the assets and the beneficial ownership is not
realised through this, section 3:84 (3) CC does not affect the beneficial ownership of the
221
De Groot (Rules for the Transfer of Movables: A Candidate for European Harmonisation or National
Reform?) 2008, p. 171 222
E.M. Meijers (1880-1954) was a jurisconsult of recognised competence and the founder of the (new) Dutch
Civil Code. 223
Meijers 1958, p. 285 224
Reehuis et al. 2006, p. 95 225
Dutch Supreme Court 19 May 1995 226
Dutch Supreme Court 19 May 1995 227
Dutch Supreme Court 19 May 1995
- 31 -
sukuk holders.228
Moreover, a valid transfer in line with section 3:84 (3) CC is realised, when
the transferee acquires all property law powers of proprietorship.229
This is the case in a sukuk
al-ijarah transaction, because all property law powers remain by the SPV. Section 3:84 (3) is
not an impediment for a fiduciary relation whereby the transferee does not enjoy the
advantages derivable from the use of the property. These advantages can contractually be
transferred to third persons.230
This is also the case in a sukuk al-ijarah transaction, whereby
the beneficial ownership is created contractually through certification and the scope of charter
of the foundation.
4.2.2 Issuance of sukuk
4.2.2.1 Role of the Special Purpose Vehicle
Once the assets have been transferred to the SPV, the SPV will issue sukuk. The SPV is the
entity that purchases assets from the originator and funds the purchase price by the issuance
of sukuk.231
The creation of a SPV facilitates the structuring and issuance of sukuk to sukuk
holders and at the same time the SPV also acts as a trustee for the sukuk holders.232
The sukuk
holders are mostly central banks, Islamic banks, and individuals who subscribe to sukuk
issued by the SPV.233
In the UK, the SPV in a sukuk al-ijarah structure is always a trust and
this has two main benefits. Firstly, in event of insolvency, other creditors of the bankrupt SPV
will have no recourse to the trust assets, because the SPV holds the assets in trust for the
sukuk holders. So through this, the bankruptcy remoteness is realised, which has to be taken
into account as mentioned above. Secondly, a trust structure is needed because sukuk
transactions must create a beneficial ownership interest for the sukuk holders in the
underlying assets in order to be Shari’a-compliant. In a trust structure, the trustee has the
legal ownership of the assets, while the beneficiaries have the beneficial ownership. As
discussed in the previous paragraph and will be outlined below, transferring beneficial
228
The beneficial ownership of the sukuk holders could also be realised through the transfer of the assets, by
using the Dutch concept of ‘ownership at title of management’ – overdracht ten titel van beheer – which is
called fiducia cum amico. Nevertheless, this concept is not used to realise the beneficial ownership of the sukuk
holders. But even using this concept would neither be obstructed by section 3:84 (3) CC, so long the parties
intend the SPV to become the legal owner and realise a valid transfer of the assets from the originator to the SPV
as is the case in a sukuk al-ijarah. For more on this see: Dutch Parliamentary History, Book 3 (Introducing 3, 5,
and 6), p. 1273; Raaijmakers 2006, p. 60. 229
Maatman 2004, p. 75 230
Asser-Mijnssen-De Haan 2001, nr. 474; Kortmann & Verhagen 1999, p. 196; Faber 1996, p. 231-232 231
Ayub 2008, p. 393 232
HM Treasury 2007, p. 12 233
Ayub 2008, p. 393
- 32 -
ownership of the assets to the sukuk holders is sufficient to meet the requirement of ownership
under the Shari’a. These two benefits illustrate that the trust concept is appropriate and
convenient for a sukuk al-ijarah structure. So far, however, Dutch law does not recognise a
trust concept.234
In most structured asset finance transactions the foundation is used as trustee
or agent in the Netherlands.235
By using the foundation, a trust-like relationship is created for
the investors.236
A foundation was chosen to issue sukuk to sukuk holders relating to the
income derived from certain office buildings located in the German State Saxony-Anhalt in
the 2004 Saxony-Anhalt sukuk issuance.237
The foundation has several advantages. A main
advantage of it is that it is easy to set up and the compliance costs are generally marginal.238
In the Dutch financial practice, the foundation is the ideal legal entity for a SPV.239
It is an
organization with at (special) purpose, in whose assets outsiders do not participate.240
Contrary to the Dutch BV and NV, there is no tension between the interests of the
organization and the interest of the shareholders.241
Since it is the nature of a foundation not
to have dividend responsibilities towards her shareholders (because she has no shareholders),
the foundation is really convenient and appropriate to focus on a specific purpose that lies
outside here self, such as the custody of the assets that are transferred to her.242
Furthermore,
the foundation has significant tax advantages when compared to the Dutch BV or NV.243
However, the foundation does not create beneficial ownership for the sukuk holders neither
does it realise the same bankruptcy remoteness as a trust. Both aspects will be dealt with
below.
4.2.2.2 Implications of Dutch foundation
In the previous paragraph, it was discussed that the SPV, being the trustee in the transaction,
should be a foundation when structuring a sukuk al-ijarah in the Netherlands.244
The
foundation cannot create the same bankruptcy remoteness as a trust, but it can make the
234
Aertsen 2004, p. 295 235
Muller & Hooft 2008c 236
Muller & Hooft 2008c 237
Muller & Hooft 2008c 238
Muller & Hooft 2008c 239
Van Houte 2001, p. 76-81 240
Duffhues et al. 2006, p. 289 241
Duffhues et al. 2006, p. 289 242
Van Houte 2001, p. 76-81 243
The foundation is not subject to corporation tax in the Netherlands, if it doest not carry on an enterprise and if
it does not enter into competition with (taxable) entrepreneurs. As mentioned above, the tax law aspects of sukuk
will not be discussed in this research. For more on this see: Muller & Hooft 2008c; Wessels, Schwarz & van de
Streek 2002, p. 210; Van Houte 1994; Duffhues et al. 2006, p. 289. 244
Aertsen 2004, p. 114-115
- 33 -
bankruptcy of the SPV as unlikely as possible and this is sufficient to structure the transaction
in a proper way. When a foundation is used as the SPV, the obligation to manage the
transferred assets is based on the scope of the charter of the foundation, i.e. the scope of the
charter will state that the foundation will hold the assets in favour of the sukuk holders and
that the sukuk holders are the beneficial owners of the assets.245
This gives the sukuk holders
the beneficial ownership over these assets and that is sufficient to meet the Shari’a
requirement that sukuk holders must have a certain degree of ownership of the underlying
assets. However, the assets that are transferred to the SPV to be held in favour of the sukuk
holders do not create a separation of assets, so there is no split of ownership.246
As a result,
the assets will form part of the bankruptcy estate of the SPV in case of bankruptcy of the
SPV.247
Then the beneficiaries merely have a personal right against the SPV.248
Therefore, the
scope of the charter should be formulated such that the foundation will merely have a strict
limited statutory purpose, i.e. the management of the assets in favour of the sukuk holders.249
Although this does not create a separation of assets, it will limit the bankruptcy risks for the
beneficiaries, since the foundation cannot create significant debts, beside debts that are
necessary for the management of the assets.250
However, the risk that the board of the
foundation will dispose of the trust assets contrary to the management-agreement is still
present. The sukuk holders have at most a personal claim against the SPV and, more
importantly, against the director that has transferred the assets contrary to the articles of
association of the foundation for damages for failure to perform a contract, because of the
mala fide transfer of the assets wrongfully transferred by the SPV.251
Due to section 6:103 CC
there can also be a liability in tort against the third party to whom the SPV has sold the assets,
if the third party has performed a tortuous conduct.252
Furthermore, a limited scope of charter
due to section 2:7 CC restricts the power of representation of the board, but within the scope
of the charter the board has unlimited and unconditional power of representation due to
section 2:292 (3) CC. According to section 2:292 (3) CC a further statutory limitation of the
245
Aertsen 2004, p. 114-115 246
Uniken Venema & Eisma 1990, p. 335; Reehuis et al. 2006, p. 98; Snijders & Rank-Berenschot 2007, p. 164 247
Aertsen 2004, p. 111 248
Verhagen (Extending the boundaries of trusts and similar ring-fenced funds) 2002, p. 95; Aertsen 2004, p.
111 249
Aertsen 2004, p. 114-115 250
Aertsen 2004, p. 114-115 251
Verhagen (Extending the boundaries of trusts and similar ring-fenced funds) 2002, p. 95; Aertsen 2004, p.
111 252
For more on the question when a third party has acted unlawfully and, therefore, an action in tort is possible
see: Dutch Supreme Court 17 November 1967; Dutch Supreme Court 17 May 1985; Dutch Supreme Court 27
January 1989; Aertsen 2004, p. 112
- 34 -
power of representation is merely possible so long the law allows it.253
The law, however,
nearly gives possibilities to do so.254
Once the board has performed an act of disposal which is
contrary to the scope of the charter and the counterparty knew this or should have known it
without further research, only the foundation (or its bankruptcy trustee) can make the legal act
void as being ultra vires255
according to section 2:7 CC. The sukuk holders are interested
parties under section 2:298 CC and can request the court to dismiss the board based on section
2:299 CC.256
Consequently, the new appointed board can make the legal act void as being
ultra vires.257
Moreover, the scope of charter of the foundation must meet the requirements of
section 2:285 (3) CC, which states that the foundation is not allowed to make payments to the
founders or the board members of the foundation and that the payments must serve an ideal or
social purpose. These requirements will not form a problem in a sukuk al-ijarah transaction.
Firstly, the payments will be made to the sukuk holders and, therefore, the issue of the
prohibition of payment to founders and board members is not relevant. Secondly, although the
foundation can also be used for commercial purposes and the requirement of ´ideal and social
purpose´ is interpreted broadly in the literature258
, in a sukuk al-ijarah transaction this will not
form a problem at all, because the structure is driven by moral, ethical, and religious
incentives. Islamic financial instruments are often referred to as moral ways of financing,
since they are based on a fair distribution of welfare and risks between the parties and there is
always a connection with real economic value in these transactions because of the underlying
assets. But even if this will not be regarded to as an ideal or social purpose, it still will not be
a problem, because the foundation can also be used for commercial purposes and the
requirement of ´ideal and social purpose´ is interpreted broadly in the literature.259
4.2.2.3 The issuance of sukuk
Then finally, the issuance of the sukuk can be structured in the Dutch legal context. The
foundation can issue the sukuk through certification of the underlying assets. There is no
definition of certification under Dutch law.260
In the literature, certification is described as an
instrument which creates a situation whereby the legal owner holds the assets in favour of the
253
Aertsen 2004, p. 114-115 254
Van den Ingh 1991, p. 192-195; Dijk & Van der Ploeg 2002, p. 176-177 255
Ultra vires literary means ‘beyond the powers’ and it refers to a legal act that is beyond the power of
representation that the board has based on the scope of charter. 256
Aertsen 2004, p. 115-116 257
Van den Ingh 1991, p. 193 258
Aertsen 2004, p. 116; Dijk & Van der Ploeg 2002, p. 15-16 259
Aertsen 2004, p. 116; Dijk & Van der Ploeg 2002, p. 15-16 260
Van den Ingh 1991, p. 16
- 35 -
beneficial owner.261
So through certification, the beneficial ownership of the sukuk holders
can be realised. Therefore, certification is preferred instead of the issuance of bonds in the
Dutch legal context. Moreover, an essential feature of bonds is the payment of interest.262
Issuing bonds as sukuk in the Dutch legal context can raise questions in regard to the
prohibition on riba and this also indicates that certification is preferred. The certificate is a
personal right that gives the certificate holder a right to payment of that what is promised to
him by the statutory conditions.263
It is a security that can have different forms and the nature
of it will be described in the certification-agreement and in the statutes of the foundation, if
the status of the foundation will contain the rights and obligations of the certificate holders.264
This means that the certification-agreement and the articles of association of the foundation
can elucidate that the certificates are sukuk. Furthermore, the certification-agreement states
that the SPV will pay the lease payments which the SPV receives from the originator to the
sukuk holders and that, therefore, the sukuk holders will be the beneficial owners of the
underlying assets. The certificates which are issued as sukuk will also state that the sukuk
holders are the beneficial owners of the underlying assets, since they will receive the lease
payments that the originator is paying to the SPV from the SPV. So certification of the
underlying assets to the sukuk holders creates a situation whereby the SPV (being the legal
owner) will hold the assets in favour of the sukuk holders (being the beneficial owners). This
determines the fact that the sukuk holders will have beneficial ownership in this structure and
that is enough to meet the conditions of the Shari’a, since the sukuk holders must hold a
beneficial interest in the underlying assets.265
It should be noted that the sukuk holders merely
have contractual entitlements towards the foundation under this structure.266
Nevertheless, this
is not a problem from a Shari’a perspective.267
As described in the first paragraph, the
261
Van der Grinten & Teurniet 1964, p. 7; Van der Grinten & Teurniet 1964, p. 86-87 262
Claes et al. 2009, p. 102; Nibbering 2006, p. 63; Nibbering 2006, p. 65; Baalen 2006, p. 190; Kroeze,
Timmerman & Wezeman 2007, p. 78; Ots 2005, p. 79 263
Aertsen 2004, p. 118-119 264
Van Gerven (Tendensen in het economisch recht) 2006, p. 367 265
Box & Asaria 2005, p. 22 266
Aertsen 2004, p. 70 267
It is also possible to create a collateral security structure by providing security interests for the benefit of the
sukuk holders over the underlying tangible assets or over the lease payments. This can be realised with a security
agent and it is allowed under the Shari’a. However, since it is not required from a Shari’a perspective and
contractual entitlements are sufficient from a Shari’a perspective, this will not be elaborated in this research. For
more on the possibilities for a collateral security structure under Dutch civil law, see: Rongen
(Vertegenwoordiging en Tussenpersonen) 1999, p. 319-349; Aertsen 2004, p. 120-122; Dirix (Liber Amicorum
Jacques Herbots) 2002, p. 97-111; Van Houte 2009, p. 40-42; Thiele 2003, p. 27-104; Jarigsma (Onderneming
en Integriteit) 2007, p. 138-151; Vermunt (Fiduciaire verhoudingen: Libellus amicorum prof. mr. S.C.J.J.
Kortmann) 2007, p. 247-465.
- 36 -
principle of contractual certainty is at the heart of Islamic law.268
So certification of the
underlying assets is the final step in the sukuk al-ijarah transaction.
5. CONCLUSION
In order to understand Islamic finance, one has to study its background. Islamic finance refers
to Shari’a-compliant financing and, therefore, it is important to understand Islamic law as
well. In accordance with the classical formulation of the sources of Islam there are two
classical sources of law: the Qur’an and the authentic Hadith. The discipline of Usul al-Fiqh,
the ‘roots of Islamic law’, can be described as the Islamic legal theory. The sources of Islamic
law also form a distinguishing factor of the doctrine of Islamic economics. Although Islamic
economics has some links with both Marxism and Capitalism, these two ideologies do not
completely reflect the ideology of Islamic economics. One of the most developed areas of
Islamic economics is Islamic finance. Islamic finance has the same purpose as conventional
banking, except that it operates in accordance with the Shari’a. Islamic finance distinguishes
itself from conventional banking by several important features. The most important two
distinguishing principles are the prohibitions of paying and receiving riba, and of the
existence of gharar in contracts. Based upon these principles, several Islamic financial
contracts have been created, such as the cost plus sale called murabaha, partnerships such as
mudarabah and musharaka, Islamic forwards known as salam and istisna’, and leasing
contracts such as ijarah and ijarah-wa-iqtina. These structures are applied to Islamic financial
products. One of the most important Islamic financial products are sukuk.
Since there are fourteen possible structures for sukuk, it is not possible to find one
overarching legal solution for all types of sukuk and, therefore, these instruments need to be
examined on a case-by-case basis. Therefore, merely the sukuk al-ijarah was discussed. The
sukuk al-ijarah can be structured under the current Dutch civil law. In essence, the sukuk al-
ijarah can be structured under current Dutch civil law with a SALB of halal tangible assets
from an originator to an SPV and certification of these tangible assets by the SPV to the sukuk
holders. The transfer of the assets must meet the conditions of section 3:84 (1) CC and the
lease back will be due to section 7:201 CC. In accordance with the ‘Keereweer q.q. v.
Sogelease’ case, section 3:84 (3) CC does not prohibit the SALB in a sukuk al-ijarah structure.
The SPV can be established as a Dutch foundation. A limited objects clause can result in a
268
Jobst et al. 2008, p. 10
- 37 -
reduction of the bankruptcy risks of the SPV. The certification-agreement should stipulate
that the sukuk holders are the beneficial owners of the underlying assets and, thus, the
beneficial ownership of the sukuk holders can be realised through certification. Hence, it is
possible to structure the sukuk al-ijarah under current Dutch civil law and no legislative
changes are needed.
The legal issues that rose in regard to the structure of the sukuk al-ijarah under Dutch
civil law were (1) the SALB transaction within Dutch civil law; (2) the concept of leasing
within Dutch civil law; (3) the concept of a trust within Dutch civil law and, therefore, also
issues in regard to the concept of a trust such as (3a) the bankruptcy remoteness of the trustee,
and (3b) the beneficial ownership of the beneficiaries; and (4) certification of tangible assets
within Dutch civil law. These legal issues that rose in regard to the structure of the sukuk al-
ijarah are more inherent to the world of international finance and international financial
transactions rather than being typical frictions with Islamic law, although the background of
these legal issues was Islamic law, because several Islamic principles had to be met in order
to make the structure Shari’a-compliant. This makes Islamic finance complicated and
interesting. Both Islamic law requirements and transactional requirements need to be
examined well, before setting up a certain structure. Once this is done, that Islamic financial
structure needs to be legally embedded into the law system of a certain jurisdiction. This
research also raises other question in regard to the sukuk. Questions that were not dealt with in
this research, because it was outside the scope of this research, but that definitely deserve the
attention when structuring sukuk. First of all, legal issues in regard to tax law and regulatory
law were not dealt with in this research. Both aspects played an important role in the
legislative changes in the UK. Moreover, legal questions on the enforceability of the
transactional documents, the choice of law, and the enforcement of judgments were not
discussed in this research. These issues also play a role in a sukuk al-ijarah transaction and
deserve the attention of further research. Furthermore, this research only structured the sukuk
al-ijarah in the Netherlands. However, there are fourteen other sukuk structures. An
interesting question is how these sukuk structures can be legally adapted under Dutch civil
law, e.g. the sukuk al-mudarabah which is an important sukuk structure as well. Another
structure which is getting more and more attention in the Islamic finance world is a sukuk
securitization. It would be interesting to research the possibilities for a sukuk securitization. In
order to mark out the research, it was not possible to discuss these issues in this study.
However, some of these issues will be discussed in further research on sukuk.
- 38 -
Bibliography English/Dutch/German Sources
Books
Aertsen 2004
D.W. Aertsen, De trust: beschouwingen over de invoering van de trust in het Nederlands recht (Serie
Onderneming en Recht), Deventer: Kluwer 2004
Aghnides 1961
N.P. Aghnides, Mohammedan Theories of Finance, Lahore: Premier Book House 1961
Ahmad 1947
S.M. Ahmad, Economics of Islam: A Comparative Study, Lahore: Sh. Muhammad Ashraf 1947
Ahmed (Islamic Finance: Innovation and Growth) 2002
T.E. Ahmed, ‘Accounting issues for Islamic banks’, in: S. Archer and R.A.A. Karim (ed.), Islamic Finance:
Innovation and Growth, London: Euromoney Books and AAOIFI 2002
Al-Misri 1994
A.i.N. Al-Misri, Reliance of the Traveler: A Classical Manual of Islamic Sacred Law, Beltsville: Amana
Publications 1994
Al-Zuhayli 2003
W. Al-Zuhayli, Financial Transactions in Islamic Jurisprudence: A Translation of Vol. 5 of Al-Fiqh al-Islami
wa Adillatuhu, Damascus: Dar al-Fikr 2003
Archer & Karim (Islamic Finance: Innovation and Growth) 2002
S. Archer & R.A.A. Karim, ‘Introduction to Islamic Finance’, in: S. Archer and R.A.A. Karim (ed.), Islamic
Finance: Innovation and Growth, London: Euromoney Books and AAOIFI 2002
Archer & Karim 2007
S. Archer & R.A.A. Karim, Islamic Finance: The Regulatory Challenge, Singapore: John Wiley and Sons 2007
Asser-Mijnssen-De Haan 2001
C. Asser, F.H.J. Mijnssen & P. de Haan (ed.), Algemeen Goederenrecht (Mr. C. Asser’s Handleiding tot de
beoefening van het Nederlands Burgerlijk Recht), Deventer: Kluwer 2001
Ayub 2008
M. Ayub, Understanding Islamic Finance, Hoboken: John Wiley and Sons 2008
Baalen 2006
- 39 -
S.B. Baalen, Zorgplichten in de effectenhandel, Deventer: Kluwer 2006
Chapra 1992
M.U. Chapra, Islam and the Economic Challenge, Leicester: The Islamic Foundation 1992
Claes et al. 2009
P.F. Claes et al., Praktijkgids Beleggen & Financieren, Deventer: Kluwer 2009
Coulson 1994
N.J. Coulson, A History of Islamic Law, Edinburgh: Edinburgh University Press 1994
De Groot (Rules for the Transfer of Movables: A Candidate for European Harmonisation or National
Reforms?) 2008
S. de Groot, ´Fiduciary Transfer and Ownership´, in: W. Faber & B. Lurger (ed.), Rules for the Transfer of
Movables: A Candidate for European Harmonisation or National Reforms? (European Legal Studies), Munich:
Sellier European Law Publishers 2008
DeLorenzo (Islamic Finance: Innovation and Growth) 2002
Y.T DeLorenzo, ‘The religious foundations of Islamic Finance’, in: S. Archer and R.A.A. Karim (ed.), Islamic
Finance: Innovation and Growth, London: Euromoney Books and AAOIFI 2002
De Vries Robbe & Ali 2005
J.J. de Vries Robbe & P.U. Ali, Securitisation of Derivatives and Alternative Asset Classes, Yearbook (Global
Trade and Finance Series), The Hague: Kluwer Law International 2005
Dijk & Van der Ploeg 2002
P.L. Dijk & T.J. van der Ploeg, Van vereniging en stichting, coöperatie en onderlinge waarborgmaatschappij,
Deventer: Kluwer 2002
Dirix (Liber Amicorum Jacques Herbots) 2002
E. Dirix, ‘De rechtsverhouding tussen principaal, commissionair en derde’, in: J. Herbots et al. (ed.), Liber
Amicorum Jacques Herbots, Deventer: Kluwer 2002
Duffhues et al. 2006
P.J.W. Duffhues et al., Financiering, belegging en verzekering; Convergentie van financiële markten, Deventer:
Kluwer 2006
Durrani & Boocock
M. Durrani & G. Boocock, Venture Capital, Islamic Finance and SMEs, Basingstoke: Palgrave Macmillan 2006
- 40 -
El-Gamal 2006
M.A. El-Gamal. Islamic Finance: Law, Economic and Practice, Cambridge: Cambridge University Press 2006
Esposito 1998
J.L. Esposito, Islam: The Straight Path, New York: Oxford University Press, 1998
Faber
N.E.D. Faber, ‘Eigendom ten titel van beheer, kwaliteitsrekening en afgescheiden vermogen’, in: D.J. Hayton et
al. (ed.), Vertrouwd met de Trust (Serie Onderneming en Recht), Zwolle: W.E.J. Tjeenk Willink 1996
Fadeel (Islamic Finance: Innovation and Growth) 2002
M. Fadeel, ‘Legal Aspects of Islamic Finance’, in: S. Archer and R.A.A. Karim (ed.), Islamic Finance:
Innovation and Growth, London: Euromoney Books and AAOIFI 2002
Hallaq 2005
W.B. Hallaq, The Origins and Evolution of Islamic Law, Cambridge: Cambridge University Press 2005
Hengst (Recht van de Islam 3) 1985
J.J.B.M. Hengst, ‘De Shari’a en de Saoedische rechtspraktijk’, in: T. Ansay et al. (ed.), Recht van de Islam 3,
teksten van het op 21 juni 1985 te Leiden gehouden 3e symposium, Groningen: RIMO 1985
Ibn Rushd 1994
Ibn Rushd, The Distinguished Jurist’s Primer: Bidayat al-Mujtahid wa Nihayat al-Muqtasid, trans. I.A.K.
Nyazee & M.A. Rauf, London: Garnet Publishing 1994
Jarigsma (Onderneming en Integriteit) 2007
R.W. Jarigsma, ‘‘Pay us our money back. We’ve got shareholders too’’, in: I.P. Asscher-Vonk et al. (ed.),
Onderneming en Integriteit (Serie Onderneming en Recht), Deventer: Kluwer 2007
Kamali 2000
M.H. Kamali, Islamic Commercial Law: An Analysis of Futures and Options, Cambridge: Islamic Texts Society
2000
Kamali 1991
M.H. Kamali, Principles of Islamic Jurisprudence, Cambridge: Islamic Texts Society (rev. ed.) 1991
Keddie (Pioneers of the Islamic Revival) 1994
N.R. Keddie, ‘Sayyid Jamal al-Din al-Afghani’, in: Ali Rahnema (ed.), Pioneers of the Islamic Revival, London:
Zed Books 1994
- 41 -
Kroeze, Timmerman & Wezeman
M.J. Kroeze, L. Timmerman & J.B. Wezeman, De kern van het ondernemingsrecht, Deventer: Kluwer 2007
Kung 2006
H. Kung, De Islam: de toekomst van een wereldreligie, IJseldijk: Uitgeefmij Kon Ten Have 2006
Kortmann & Verhagen 1999
S.C.J.J. Kortmann & H.L.E. Verhagen, ‘(Middelijke) vertegenwoordiging: een terreinafbakening’, in: S.C.J.J.
Kortmann, N.E.D. Faber & J.A.M. Strens-Meulemeester, Vertegenwoordiging en Tussenpersonen (Serie
Onderneming en Recht), Deventer: W.E.J. Tjeenk Willink 1999
Lewis & Algaoud 2001
M.K. Lewis & L.M. Algaoud, Islamic Banking, Cheltenham: Edward Elgar Publishing 2001
Maatman 2004
R.H. Maatman, Het pensioenfonds als vermogensbeheer (Serie Onderneming en Recht), Deventer: Kluwer 2004
Mannan 1970
M.A. Mannan, Islamic Economics: Theory and Practice, Lahore: Sh. Muhammad Ashraf 1970
Meijers 1958
E.M. Meijers, De algemene begrippen van het burgerlijk recht, Leiden: Universitaire Pers Leiden 1958
Naqvi 1994
S.N. Naqvi, Islam, Economics and Society, London: Kegan Paul International 1994
Nasr 1999
S.H. Nasr, Sufi Essays, Chicago: Kazi Publications 1999
Nasr 2002
S.H. Nasr, The Heart of Islam: Enduring Values for Humanity, New York: HarperOne 2002
Nibbering 2006
J.P. Nibbering, Beleggen binnen het financiële plan, Deventer: Kluwer 2006
Nomani & Rahnema 1994
F. Nomani & A. Rahnema, Islamic Economic System, London: Zed Books 1994
Nyazee 1994
- 42 -
I.A.K. Nyazee, Theories of Islamic Law, Islamabad: International Institute of Islamic Thought and Islamic
Research Institute 1994
Ots 2005
H.J. Ots, Aandelen, obligaties en derivaten, Amsterdam: Pearson Education Benelux 2005
Pearl 1979
D. Pearl, A Textbook on Muslim Law, London: Croom Helm 1979
Peter 2007
J.A.J. Peter, Levering van roerende zaken, Deventer: Kluwer 2007
Raaijmakers 2006
M.J.G.C. Raaijmakers, Ondernemingsrecht (Pitlo, Deel 2: Het Nederlands burgerlijk recht), Deventer: Kluwer
2006
Reehuis et al. 2006
W.H.M. Reehuis et al., Goederenrecht (Pitlo, Deel 3; Het Nederlands burgerlijk recht), Deventer: Kluwer 2006
Rieck 1984
A. Rieck, Unsere Wirtschaft: Eine Gekürzle Kommentierte Übersetzung des Buches Iqtisaduna von Muhammad
Baqir al-Sadr, Berlin: Klaus Schwarz 1984
Rongen (Vertegenwoordiging en Tussenpersonen) 1999
M.H.E. Rongen, ‘De trustee bij obligatieleningen, in het bijzonder de security trustee’, in: S.C.J.J. Kortmann,
N.E.D. Faber & J.A.M. Strens-Meulemeester (ed.), Vertegenwoordiging en Tussenpersonen (Serie Onderneming
en Recht), Deventer: Kluwer 1999
Saeed 1996
A. Saeed, Islamic Banking and Interest: A Study of the Prohibition of Riba and its Contemporary Interpretation,
Leiden: E.J. Brill 1996
Saleh & Ajaj 1992
N.A. Saleh & A. Ajaj, Unlawful Gain and Legitimate Profit in Islamic Law: Riba, Gharar and Islamic Banking,
London and Boston: Graham and Trotman 1992
Schaafsma et al. 1996
J.R. Schaafsma et al., Ontwikkelingen in het effectenverkeersrecht (Serie vanwege het van der Heijden Instituut),
Deventer: Kluwer 1996
- 43 -
Schacht 1964
J. Schacht, An introduction to Islamic law, Oxford: Clarendon Press 1964
Schoon 2009
N. Schoon, Islamic Banking & Finance, London: Spiramus Press Ltd 2009
Shubber 2000
K.J. Shubber, Our Economics: Iqtisaduna, London: Bookextra 2000
Siddiqi 1981
M.N. Siddiqi, Muslim Economic Thinking, Leicester: The Islamic Foundation 1981
Snijders & Rank-Berenschot 2007
H.J. Snijders & E.B. Rank-Berenschot, Goederenrecht (Studiereeks Burgerlijk Recht), Deventer: Kluwer 2007
Thiele 2003
A.C.F.G. Thiele, Collective security arrangements: a comparative study of Dutch, English and German law
(Law of business and finance), Deventer: Kluwer 2003
Thomas, Cox & Kraty 2005
A. Thomas, S. Cox & B. Kraty, Structuring Islamic Finance Transactions, London: Euromoney Books 2005
Tripp 2006
C. Tripp, Islam and the Moral Economy: The Challenge of Capitalism, Cambridge: Cambridge University Press
2006
Usmani 2002
M.T. Usmani, An Introduction to Islamic Finance (Arab and Islamic Law Series), The Hague: Kluwer Law
International 2002
Uniken Venema & Eisma 1990
C.A.E. Uniken Venema & S.E. Eisma, Eigendom ten titel van beheer naar komend recht (Preadvies van de
Vereeniging ´Handelsrecht´), Zwolle: W.E.J. Tjeenk Willink 1990
Uzair 1955
M. Uzair, An outline of Interestless Banking, Karachi: Raihan Publications 1955
Van der Grinten & Teurniet 1964
- 44 -
W.C.L. van der Grinten & W.C. Teurniet, Certificering van onroerend goed: prae-adviezen (Preadvies voor de
jaarlijkse vergadering van de broederschap der notarissen in Nederland), Rotterdam: Broederschap der
Notarissen 1964
Van Houte 1994
C.P.M. van Houte, De stichting in het Nederlandse belastingrecht (Fiscale Monografie), Deventer: Kluwer 1994
Van Houte 2009
C.P.M. van Houte, Fiscale aspecten van Kredietderivaten & (Synthetische) Securitisatie, Deventer: Kluwer 2009
Van den Ingh 1991
F.J.P. van den Ingh, Certificering en certificaat van aandeel bij de besloten vennootschap (Serie vanwege het
Van der Heijden Instituut), Deventer: Kluwer 1991
Van Gerven (Tendensen in het economisch recht) 2006
D. van Gerven, ‘De private stichting als administratiekantoor’, in: K. Byttebier, E. De Batselier & R. Feltkamp
(ed.), Tendensen in het economisch recht (Publicaties van het Centrum voor Economisch Recht), Antwerpen:
Maklu 2006
Van Vliet (Elgar encyclopedia of comparative law) 2006
L. van Vliet, ´Transfer of movable property´, in: J.M. Smits (ed.), Elgar encyclopedia of comparative law,
Cheltenham: Edward Elgar Publishing 2006
Verhagen (Extending the boundaries of trusts and similar ring-fenced funds) 2002
H.L.E. Verhagen, ‘Ownership-based fund management in the Netherlands’, in: D.J. Hayton (ed.), Extending the
boundaries of trusts and similar ring-fenced funds, The Hague: Kluwer Law International 2002
Vermunt (Fiduciaire verhoudingen: Libellus amicorum prof. mr. S.C.J.J. Kortmann) 2007
N.S.G.J. Vermunt, ´De trust in het zekerheidsrecht´, in: N.E.D. Faber, C.J.H. Jansen & N.S.G.J. Vermunt (ed.),
Fiduciaire verhoudingen: Libellus amicorum prof. mr. S.C.J.J. Kortmann (Serie Onderneming en Recht),
Deventer: Kluwer 2007
Vogel & Hayes 1998
F.E. Vogel & S.L. Hayes, Islamic Law and Finance, Religion, Risk, and Return (Arab and Islamic Law Series),
The Hague: Kluwer Law International 1998
Wessels, Schwarz & van de Streek 2002
B. Wessels, K. Schwarz & J. van de Streek, Stichting en fiscus (Kluwer Belastingwijzers), Deventer: Kluwer
2002
- 45 -
Wilson 1991
P.W. Wilson, A Question of Interest: The Paralysis of Saudi Banking, Boulder: Westview Press 1991
Wilson (Islamic Thought in the Twentieth Century) 2004
R. Wilson, ‘The Development of Islamic Economics: Theory and Practice’, in: S. Taji-Farouki and B.M. Nafi
(ed.), Islamic Thought in the Twentieth Century, London: I.B. Tauris 2004
Winkel 1997
E. Winkel, Islam and the Living Law: The Ibn Al-Arabi Approach, Karachi: Oxford University Press 1997
Wood 2008
P. Wood, Law and Practice of International Finance, London: Sweet & Maxwell 2008
Jurisprudence
Dutch Supreme Court 17 November 1967
Dutch Supreme Court 17 November 1967, NJ 1968, 42
Dutch Supreme Court 17 May 1985
Dutch Supreme Court 17 May 1985, NJ 1986, 760
Dutch Supreme Court 27 January 1989
Dutch Supreme Court 27 January 1989, NJ 1990, 89
Dutch Supreme Court 19 May 1995
Dutch Supreme Court 19 May 1995, NJ 1996, 119
Official publications the Netherlands
Dutch Parliamentary History, Book 3 (Introducing 3, 5, and 6)
W.H.M. Reehuis & E.E. Slob, Parlementaire Geschiedenis van het nieuwe Burgerlijk Wetboek. Invoering
boeken 3, 5 en 6. Boek 3. Vermogensrecht in het algemeen, Deventer: Kluwer 1990
Official publications United Kingdom
Budget 2007
HM Revenue & Customs, Budget 2007: Budget Notes, <http://www.hmrc.gov.uk/budget2007/master-notes.pdf>
Budget 2008
- 46 -
HM Treasury, Budget 2008; Stability and opportunity; building a strong, sustainable future, <http://www.hm-
treasury.gov.uk/d/bud08_completereport.pdf>
Journal articles
Abdel-Khaleq & Richardson 2006
A.H. Abdel-Khaleq & C.F. Richardson, ‘New Horizons for Islamic Securities: Emerging Trends in Sukuk
Offerings’, Chicago Journal of International Law 2006-2007
Box & Asaria 2005
T. Box & M. Asaria, ‘Islamic finance market turns to securitization’, International Finance Law Review 2005-7
El-Gamal 2000
M.A. El-Gamal, ‘A Basic Guide to Contemporary Islamic Banking and Finance’, Indiana: ISNA 2000
El-Gamal 2008
M.A. El-Gamal, ‘An Economic Explication of the Prohibition of Riba in Classical Islamic Jurisprudence’,
Islamic Economic Studies 2008-8
El Idrissi 2008
M. El Idrissi, ‘De Islamitische financieringsvorm Murabaha’, Vennootschap & Onderneming 2008-2
Fadel 2008
M.H. Fadel, ‘Riba, Efficiency, and Prudential Regulation: Preliminary Thoughts’, Winsconsin International Law
Journal 2008 (symposium)
Hanif 2008
A. Hanif, ‘Islamic Finance – An Overview’, International Energy Law Review 2008-1
Holden 2007
K. Holden, ‘Islamic Finance: ‘Legal Hypocrisy’ Moot Point, Problematic Future Bigger Concern’, Boston
University International Law Journal 2007
Ibrahim 2008
A.A. Ibrahim, ‘The Rise of Customary Businesses in International Financial Markets: An Introduction to Islamic
Finance and the Challenges of International Integration’, American University International Law Review 2008-4
Jabbar 2009
H.S.F.A. Jabbar, ‘Islamic Finance: Fundamental Principles and Key Financial Institutions’, Company Lawyer
2009-30
- 47 -
Joseph 2007
A. Joseph, ‘Sukuk: Financial Instruments under Islamic Law’, Derivatives & Financial Instruments 2007-3
Lahlou & Tanega 2007
M.S. Lahlou & J. Tanega, ‘Islamic Securitisation: Part II – A Proposal for International Standards, Legal
Guidelines and Structures’, Journal of International Banking Law and Regulation 2007-7
Majeed 2004
N. Majeed, ‘Good Faith and Due Process: Lessons Learned from the Shari’a’, Arbitration International 2004
McMillen 2006
M.J.T. McMillen, ‘Contractual Enforceability Issues: Sukuk and Capital Market Development’, Chicago Journal
of International Law 2006-2007
Moghul & Ahmed 2003
U.F. Moghul & A.A. Ahmed, ‘Contractual Forms in Islamic Finance Law and Islamic Investment Company of
the Gulf (Bahamas) Ltd. v. Symphony Gems N.V. & Others: A First Impression of Islamic Finance’, Fordham
International Law Journal 2003, 27-1
Muller & Hooft 2008a
N.E. Muller & C.P. Hooft, ‘Shari’a-conforme woningfinanciering ontsluierd’, Weekblad voor Privaatrecht,
Notariaat en Registratie 2008-6765
Olson & Zoubi
D. Olson & T.A. Zoubi, ‘Using accounting ratios to distinguish between Islamic and conventional banks in the
GCC region’, The International Journal of Accounting 2008
Philip 1990
T. Philip, ‘The idea of Islamic economics’, Die Welt des Islams 1990-30
Qadri 2008
S.Q. Qadri, ‘Islamic Banking, An Introduction’, Business Law Today 2008-6
Saqqaf 2006
L. Saqqaf, ‘Middle East debt: The new sukuks; Innovative structures are changing the face of Islamic bonds’,
International Finance Law Review 2006-10
Tariq & Dar 2007
- 48 -
A.A. Tariq & H. Dar, ‘Risks of Sukuk Structures: Implications for Resource Mobilization’, Thunderbird
International Business Review 2007-2
Tjittes 2008
R.P.J.L. Tjittes, ‘Islamitisch financieren in Nederland’, Rechtsgeleerdheid Magazijn THEMIS 2008-4
Van Houte 2001
C.P.M. van Houte, ‘De stichting als special purpose vehicle in het kader van securitization’, S&V 2001-4
Van Rossum 2009
S.A.J. van Rossum, ‘Islamitisch financieren onder Nederlands civiel recht’, Ondernemingsrecht 2009-8
Vine et al. 2008
P. Vine et al., ‘‘The Way’ Forward: Islamic law and financial structures, An Introduction’, Tijdschrift voor
Financieel Recht 2008-12
Wilson 1998
R. Wilson, ‘The Contribution of Muhammad Baqir al-Sadr to Contemporary Islamic Economic Thought’,
Journal of Islamic Studies 1998-9
Reports
AAOIFI Shariah Board 2008
AAOIFI Shariah Board, Resolutions on Sukuk, February 2008, Bahrain: AAOIFI 2008
Ainley et al. 2007
M. Ainley et al., Islamic Finance in the UK: Regulation and Challenges, London: Financial Services Authority
2007
Cakir & Raei 2007
S. Cakir & F. Raei, Sukuk vs. Eurobonds: Is There a Difference in Value-at-Risk? (IMF Working Paper 07/237),
Washington: International Monetary Fund 2007
DNB June 2007
Kwartaalbericht juni 2007, De Nederlandsche Bank
El-Hawary, Grais & Iqbal 2004
D. El-Hawary, W. Grais & Z. Iqbal, Regulating Islamic Financial Institutions: The Nature of the Regulated
(World Bank Policy Research Working Paper 3227), Washington: World Bank 2004
- 49 -
HM Revenue & Customs 2008
HM Revenue & Customs, Stamp duty land tax: Commercial sukuk; Consultation Document, 26 June 2008,
London: HM Revenue & Customs
HM Revenue & Customs 2009
HM Revenue & Customs, Stamp duty land tax: Commercial sukuk; A response to the Consultation, 12 February
2009, London: HM Revenue & Customs
HM Treasury 2007
HM Treasury, Government sterling sukuk issuance: a consultation, November 2007, London: United Kingdom
Debt Management Office 2007
HM Treasury 2008a
HM Treasury, The development of Islamic finance in the UK: the Government’s perspective, December 2008,
London: United Kingdom Debt Management Office 2008
HM Treasury 2008b
HM Treasury, Government sterling sukuk issuance: a response to the consultation, June 2008, London: United
Kingdom Debt Management Office 2008
HM Treasury & FSA 2008
HM Treasury & FSA, Consultation on the legislative framework for the regulation of alternative finance
investment bonds (sukuk), December 2008, London: United Kingdom Debt Management Office 2008
IOSCO 2004
IOSCO, Islamic Capital Market Fact Finding Report, Malaysia: Islamic Capital Market Task Force 2004
Jobst et al. 2008
A. Jobst et al., Islamic Bonds Issuance – What Sovereign Debt Managers Need to Know (IMF Working Paper
08/3), Washington: International Monetary Fund 2008
Kettel 2002
B. Kettel, Islamic Banking and Finance in the Kingdom of Bahrain, Bahrain: Bahrain Monetary Agency 2002
Moody’s Global Credit Research 2009
Moody’s Global Credit Research, Global Sukuk Issuance: 2008 Slowdown Mainly Due to Credit Crisis, But
Some Impact From Shari’ah Compliance Issues, New York: Moody’s Global Credit Research Announcement
2009
Usmani 2008
- 50 -
M.T. Usmani, Sukuk and their Contemporary Applications (Working Paper 2008), Bahrain: AAOIFI Shariah
Council 2008
Verhoef, Azahaf & Bijkerk 2008
B. Verhoef, S. Azahaf & W. Bijkerk, Islamic Finance and Supervision: an explanatory analysis, Amsterdam:
DNB Occasional Studies 2008
Zaman 2008
A. Zaman, Islamic Economics: A Survey of the Literature (Working Paper 22 – 2008 of the Religious and
Development Research Programme), Birmingham: Department for International Development 2008
Newspapers and press releases
Allen & Overy 2003
Allen & Overy, Allen & Overy Advises on Islamic First (Internet Press Release), 12 August 2003
Muller & Hooft 2008b
N.E. Muller & C.P. Hooft, ‘Islamitische bank is veiliger’, Financieel Dagblad 10 oktober 2008
Muller & Hooft 2008c
N.E. Muller & C.P. Hooft, ‘Benelux: Courting the Islamic investor’, Legalweek News
<http://www.legalweek.com/legal-week/analysis/1151098/benelux-courting-islamic-investor>
Schouten 2009
E. Schouten, ‘Probeer bankieren eens met de Sharia’, NRC Handelsblad 14 januari 2009
Internet
AAOIFI Overview
<http://www.aaoifi.com/overview.html>
Business Dictionary
< http://www.businessdictionary.com/>
Dictionary
<http://www.dictionary.com/>
Islamic Finance Resources 2009
- 51 -
Islamic Finance Resources, ‘Islamic Finance, English Law, and UK Courts’, Islamic Finance Resources:
Blogspot <http://islamic-finance-resources.blogspot.com/2009/04/islamic-finance-english-law-and-uk.html>
Islamic Financial Services Board
<http://www.ifsb.org/>
Risk 2007
Incisive Media, ‘Islamic Finance – Work in progress’, Risk Feature: Islamic Finance
<http://www.risk.net/public/showPage.html?page=461256>
Arabic/Urdu Sources
Books
Al-‘Abbadi 1977
A.Al-S.D. Al-‘Abbadi, Al-Milkiyah fi al-shari’at al-Islamiyah, Amman: Maktabat al-Aqsa 1977
Al-Ba’li 1987
A.Al-H.M. Al-Ba’li, Maqasid al-shari’ah wa-mushkilat al-hajjat fi al-iqtisad, Cyprus: International Institute for
Islamic Banks and Economy 1987
Al-Fanjari 1986
M.S. Al-Fanjari, Al-Madhhab al-iqtisadi fi al-Islam, Cairo: al-Hai´at al-Misriyat al-´Ammah li-l-Kitab 1986
Al-Fanjari 1981
M.S. Al-Fanjari, Dhatiyat al-siyasiyat al-iqtisadiyat al-Islamiyah, Cairo 1981
Al-Masri 1989
R.Y. Al-Masri, Usul al-iqtisad al-Islami, Damascus: Dar al-Qalam 1989
Al-Qardawi 1995
Y. Al-Qardawi, Dawr al-qiyam wa-l-akhlaq fi al-iqtisad al-Islam, Cairo: Maktabah Wahbah 1995
Al-Sadr 1961
M.B. Al-Sadr, Iqtisaduna, Beirut: Dar al-Fikr 1961
Al-Sadr 1980
M.B. al-Sadr, Iqtisaduna, Beirut: Dar Al-Ta’aruf 1980
- 52 -
Imam 1986
M.K.Al-D. Imam, Usul al-hisbah fi al-Islam, Cairo: Dar al-Hidayah 1986
Kamal 1980
Y. Kamal, Adwa’ ‘ala-fikr al-iqtisadi al-Islami al-mu’asir, Cairo: Majallat al-Da´wah 1980
Mawdudi 1979
S.A.A. Mawdudi, Al-Riba, Beirut: Mu’assasat Al-Risalah 1979
Mawdudi 1966
S.A.A. Mawdudi, Islam aur jadid m’ashi nazariyat, Lahore: Islamic Publishers 1966
Nur 1978
M.M. Nur, Al-Iqtisad al-Islami, Cairo: Maktabat al-Tijarah wa Ta´awun 1978
Rahman 1942
S.M.H. Rahman, Islam ka iqtisadi nizam, Delhi: Nadwat al-Musannifin 1942
‘Uthman 1990
M.M. ‘Uthman, Nazriyat al-infitah al-iqtisadi fi al-Islam, Cairo: al-Dar al-Misriyah li-l-Tab´ah wa-l-Nashr 1990
Yahia 1988
M.H.A. Yahia, Iqtisaduna fi daw’ al-Qur’an wa-l-sunnah, Amman: Dar Amman lil-Nashr 1988
Zahrah 1950
A. Zahrah, Usul al-Fiqh, Cairo: Dar al-Fikr al-Arabi 1950
Zaydan 1967
A.K. Zaydan, Al-Wajiz fi Usul al-Fiqh, Baghdad: Matba’at Salman al-A’zami 1967