MUDARABAH SUKUK: ARE THEY REALLY RISKY?

MUDARABAH SUKUKS: ARE THEY REALLY RISKY?

Mudarabah sukuk (sukuk is plural form of sakk- commercial certificate/document, nevertheless here the term is used as a singular word as generally treated) came to the forefront when Dana Gas case was at its highest point in 2017/2018. Then everyone was discussing Dana Gas in the context of the so-called impending default when the company declared that its Mudarabah sukuk was no longer Shariah compliant and thus illegal and unenforceable under UAE law. The issue then was about profit payment by Dana Gas to holders of the sukuk: what are the rights of the sukuk holders when the so-called profit was not going to be paid as expected and as to whether that would trigger a default. Basically there are many questions that have been raised in this Mudarabah sukuk, among others are the followings:

·        Whether non-payment of profit by the Mudarib (Dana Gas) constitutes a default?

·        What are actually profits in the context of Mudarbah?

·        Whether the purchase undertaking provided in the agreement was valid and enforceable in law?

·        What are the rights of Mudarabah sukuk holders when the sukuk was declared as not valid or not Shariah compliant?

·        What laws are to be used the settling the dispute between the sukuk issuer and its sukuk holders?

·        What was actually the nature of a Mudarabah contract entered into by the parties: whether it is truly a Mudarabah of something else?

As it turned out later, the parties to the debacle had managed to resolved their dispute seemingly through an amicable settlement toward the end of 2018, and that development was indeed something that was commendable given the fact that settlement of disputes through compromise (sulh) leading to final resolution is in fact the best Islamic option among several other options in dispute settlement. Notwithstanding the positive development and the terms used by the parties in their settlement agreements, many relevant questions about Mudarabah and Sukuk Mudarabah are far from being clearly addressed in actual practices.

DANA GAS: WHERE CREDITORS ARE HIDING IN THE SUKUK?

DANA GAS: WHERE CREDITORS ARE HIDING IN THE SUKUK?

The latest issue surrounding Dana Gas Sukuk clearly shows that the market is still struggling to understand the true nature of sukuk. In reports published of late, many still talk about creditors taking steps to protect their interest related to payment of the so called dividend or profit as mentioned or provided for in the sukuk documents.

If the word “creditors” is to be understood conventionally referring to someone who has lent a certain sum of money, who for sure is entitled for a repayment at a certain future agreed date, then obviously the use of such word in the context of sukuk is totally unacceptable. The reason being true Shariah compliant sukuk are basically not debt instruments like conventional bonds where sums of money are borrowed or lent.

"WAAD" AND ISLAMIC CONTRACTUAL FRAMEWORK?

‘WAAD’ OR PROMISE: WHY IT IS INCONSISTENT WITH ISLAMIC CONTRACTUAL FRAMEWORK

In one of the previous posts, we raised up an issue pertaining to the use “waad” or promise in Islamic finance and how it seems that this concept has been widely employed to achieve some objectives aimed at helping one party but denying justice to the other side in a transaction. For a start, Islamic law right from the outset has recognized a distinction between a promise and a contract (‘aqd) where a contract has been viewed more important than a promise at least in the context of external binding effect. However even in the case of contracts, Islamic law does look at the nature of the contracts concerned when it comes to the question of their external binding effect  that will define whether the court will enforce the ensuing obligations or not.