Page 9 - Islamic Finance Practices

increasing number of legal cases with the

Shariah utilized as a defence mechanism

against default. Recent Dana Sukuk default in

2017 shows the use of Shariah by the
borrower to invalidate the musharaka contract

entered by contracting parties as it contains a

purchase-undertaking agreement that turns it

into a loan. Earlier in 2004 defaulting Beximco

Pharmaceuticals argued in court that the

contract utilized in the deal is based on a loan

contract as opposed to a sale. Ironically, in

both cases, the Shariah authorities invalidated

their own fatwas for some commercial
reasons.

 Asset-based Sukuk: When the Quran

promotes al-bay over riba (al-baqarah 275),
the idea is to put capital at risk in trade and

commerce as opposed to safety in riba from

the loan covenant commonly dictated by the

lender. It also means the passing of ownership

of goods by the seller to the buyer in exchange

for the price. The defaulting case for

Investment Dar (2009), Nakheel Sukuk (2008)

and KSA Saad Sukuk (2012), however,
revealed that the deals were not based on the

asset-backed model in which ownership of

underlying assets is passed to the investors. In

these three asset-based sukuks, no transfer of