Do equity-based Sukuk structures fulfil the objectives of shariah (maqasid al-shariah)‎ ?

Abstract EN

The Islamic capital market is an important component of the overall Islamic financial system especially in providing an element of liquidity to otherwise illiquid assets.

Like their conventional counterpart, Islamic capital markets complement the investment role of the Islamic banking sector in raising funds for long-term investments.

These long-term investments are facilitated through various Sharī‘ah contracts and instruments ensuring efficient mobilization of resources and their optimal allocation.

One of the most popular instruments used today in the Islamic capital market is ╖uk┴k.

Various structures of ╖uk┴k based on ijārah, mushārakah, mu╔arabah and hybrid forms have evolved.

However, these innovations have raised many Sharī‘ah issues and controversies.

This paper argues that some innovations which try to achieve the same economic outcome as conventional instruments distort the vision of Islamic economics based on justice and equitability.

These visions are deeply inscribed in the objectives of Sharī‘ah, also known as maqā╖id al-Sharī‘ah.

This distortion stems from the restricted view of understanding Sharī‘ah, by only focusing on the legal forms of a contract rather than the substance especially when structuring a financial product.

The overemphasis on form over substance leads to potential abuse of Sharī‘ah principles in justifying certain contracts which are in fact contradictory to the letter of the Sharī‘ah and ultimately undermines its higher objectives.

In the final analysis, the paper concludes that the substance of a contract that has greater implications for realisation of maqā╖id al-Sharī‘ah should be equally looked into.

Otherwise, Islamic finance just works like an exercise in words naming its functions and operations and is really no different from conventional finance, except in its use of euphemisms to disguise interest and circumvent the many Sharī‘ah restraints and prohibitions.