MUDARABAH SUKUK CERTIFICATES: WHY DOES IT MATTER?

The topic may looks irrelevant when one recognises the fact that sukuk are no longer novelties like what they used to be around 20 years ago. Since then billion dollars of sukuk have been issued, both as public and private securities not to mention also, in not small number of reading materials, sukuk have been referred to as debt securities. In fact many so-called Islamic finance writers generally put sukuk within the framework of the so called Islamic debt market or sometimes Islamic fixed income instruments. However from a number of court cases so far adjudicated, it is clear that the true nature of sukuk certificates is still far from proper understanding. This is so partly because sukuk have been issued using various underlying contracts not similar to conventional bonds of various types where the main contract used in the structures are no other than debt contracts i.e lending/borrowing contracts.

The above issue leads us to answering the question posed in the heading: why the nature of certificates issued in connection with sukuk needs to be fully explained. As mentioned, this matter is closely related to the contracts used in the relevant structures as there is no single character that can be attributed to such certificates without full understanding of the underlying contracts employed. For example in Dana Gas sukuk case, the issue about whether the sukuk were truly of mudarabah type where profit could not be fully guaranteed remains relevant as ever although the parties had come to mutual  settlement of their disputes.