SPEAKER’S
SPEAKER
S PROFILE
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DR. MOHAMAD AKRAM LALDIN
DR. MOHAMAD AKRAM LALDIN is currently the Executive Director of International Shari’ah Research Academy for Islamic Finance (ISRA). Prior to joining ISRA he was an Assistant Professor at the Kulliyah of Islamic Revealed Knowledge and Human Sciences, International Islamic University, Malaysia (IIUM). In the period 2002‐2004, he was a Visiting Assistant Professor at the University of Sharjah, Sharjah, United Arab Emirates. At present, he is the f
g
y
Advisory Council,
y
, Member of Shariah
f
Advisory Employees Provident Fund y p y
Member of Bank Negara Malaysia Shari’ah
(EPF), Member of HSBC Amanah Global Shari’ah Advisory Board, Member of Yassar Limited (Dubai) Shari’ah Advisory Board, Member of EAB (London) Shari’ah Advisory Board, Chairman of Islamic Advisory Board of HSBC Insurance Singapore, Shari’ah Advisor to ZI Syariah Advisory Malaysia, Member of Shari’ah Advisory Council International Islamic Financial Market (IIFM), Bahrain, Committee member of AAOIFI Shari’ah Scholars , Bahrain and other Boards locally and internationally. In addition, he is also the Member of the Board of Studies of the Institute of Islamic Banking and Finance, International Islamic University Malaysia. Dr. Akram holds a B.A. Honours degree in Islamic Jurisprudence and Legislation from the University of Jordan, Amman, Jordan and a Ph.D. in Principles of Islamic Jurisprudence (Usul al‐Fiqh) from the University of Edinburgh, Scotland, United Kingdom. He has presented many papers related to Islamic Banking and Finance and other Fiqh topics at national and International level and has conducted many training sessions particullarly on Islamic Banking and Finance for different sectors since 1999. He is a registered Shariah Advisor for Il i S
Islamic Securities with the Securities Commission of Malaysia and has acted as Shariah
iti
ith th S
iti C
i i
fM l i
dh
t d Sh i h advisor in the issuance of several d i i th i
f
l
sukuks. In addition he is also prolific author of academic works specifically in the areas of Islamic Banking and Finance.
He recently received the prestigious Zaki Badawi Award For Excellence in Shari'ah Advisory 2010. Assoc. Prof. Dr. Mohamad Akram Laldin
Executive Director, ISRA
INCEIF Monthly Seminar – June 2010
25 June 2010
Overview of Presentation
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Background on Shari’ah and Maqasid Al-Shari`ah
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Fiqhi & Maqasid Dilemma of Shari`ah Scholars
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Asset Based and Asset Backed Sukuk – is there a
difference?
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Fundamental Shari`ah Issue in Asset Based Sukuk
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Challenges
Definition Of Shari
Shari`ah
ah
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Shari`ah is derived from the root of shara’a which means
the path to be followed (Surah Al
Al-Ma’idah
Ma idah 5:48)
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It refers to the complete
p
((wholesome)) Islamic system
y
which were revealed to Prophet Muhammad s.a.w. which
are recorded in the Qur’an as well as deducible from the
P h ’ divinely-guided
Prophet’s
di i l
id d lif
lifestyle
l called
ll d the
h SSunnah.
h
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Copyrights reserved Amanie 2008
Components of Shari`ah
Shari`ah
I`tiqadiyyah
(Belief)
Pillars of Islam
and Iman
Human with
Creator
(`Ibadah)
Political system, nonMuslim in Islamic
state, foreign
relationship,
Law (family, civil,
criminal),
administration of
justice
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Commercial
transactions public
transactions,
finance, economic
system &
Islamic banking
`Amaliyyah
(Dealings)
Human with
Human
(Mu`amalah /
`adah)
adah)
Politic
Social
Economy
Akhlaqiyyah
(Morality)
Human with
Creator
Human being
Human with
Creation
Non human
being
Definition and Classifications
Maqasid are defined as the end sought behind the
enactment of each of the ruling of Shari’ah
Shari ah and the
secrets involved (See: Al-Fasi. Maqasid)
The end includes development of the world, system of
coexistence etc
The secrets refers to partial goals intended by the
L
Lawgiver
i
(All
(Allah)
h)
The main objectives of Shar’iah is securing a benefit for
the people and protecting them against corruption and
evil (‫)ﺟﻠﺐ اﻟﻤﺼﺎﻟﺢ ودرء اﻟﻤﻔﺎﺳﺪ‬
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Cont d…
Cont’d…
The general objectives that guide the overall enactment
of Islamic Law includes the protection and preservation
deen, life, dignity and lineage, intellect and wealth.
In specific objectives relates to the objectives designed to
achieve specific benefits in different activities including
financial and banking activities
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Ahl- Al
Ahl
Al-Ra’i
Ra i vs Ahl Al
Al-Hadith
Hadith
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The different approach in understanding the text
Literal approach or maqasidic approach
The Malikis vs the Hanafis
Originated during the time of Prophet s.a.w.
saw
The incident of Bani Qurayzah
Fiqh vs Maqasid
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Status of a contract which does not fulfill maqasid
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The notion of maslahah and mafsadah
Al-Shatibi is of the view that in determining whether a
particular action is permissible or not, it depends on the
maslahah and mafsadah factor.
factor
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Null and void if there’s explicit evidence of mafsadah
Valid if no evidence
Analogy with other type of contract, eg. misyar etc
Al-Baqarah 219 verse related to the prohibition of liquor
Other example
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Debt vs equity in Islamic Finance
Inah and Tawarruq
Transfer of ownershipp in contract
Asset Based and Asset Backed Sukuk?
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Is there a difference?
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To understand this we need to:
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Understand the funding option in the capital market
(conventional)
Look into the definition of asset based & asset backed Sukuk
Analyze one Shari`ah issue in asset based Sukuk regarding
ownership
Benefit from the test of ownership
p that has been established in
accounting standards
Understand the challenges in implementing asset backed Sukuk
• Loan (creditors)
• Unsecured
• Secured –
Investors only
has security
interest, not
owner of asset
Secu
uritizzation
n
Bond
d
Funding Options in the Capital Market
• Monetization of
asset
• Investors are
owners off asset
• No recourse to
originator
Transfer of asset only to
fulfill Shariah
requirement
i
t
• From legal perspective, investors
do not have interest in asset
• Assets stays on the balance sheet
of Obligor
PU at p
par from obligor
g
is the ultimate recourse
• Investors cannot dispose asset to
third party
• If Obligors
Obli
goes bbankrupt,
k
secured creditors can clawback
the asset
• Recourse is to obligor and not
asset
Asseet B
Backeed
Assset Baseed
Sukuk type
True Sale
• Asset is separated from
originators book
b k
Bankruptcy remoteness
• there will be no clawback of the
asset if the originator goes
bankrupt
No recourse to
originator
• only have recourse to asset thus
asset play genuine role in defaults
Source: Rating Bodies Definition & IFSB 7 - Capital Adequacy Requirement for Sukuk and Securitization
Secured Asset Based Sukuk?
Sukuk
Asset Based
Unsecured
Creditor
Secured
Creditor
Asset
Backed
Owner of
asset
Shariah Issue in Asset Based Sukuk
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Upon occurrence of a Dissolution Event, or early dissolution, the sole
rights of each of the Issuer, the Trustee, the Delegate and the
Certificateholders of the relevant Series of Trust Certificates will
be against XX to pay the Exercise Price in respect of such Series and
otherwise perform its obligations under the Transaction Documents.
Certificateholders will otherwise have no recourse to any assets of the
g , XX,, the relevant Dealer,, the Issuer and the Principal
p
Trustee,, the Delegate,
Paying Agent or any affiliate of any of the foregoing entities in respect of any
shortfall in the expected amounts due under the relevant Trust Assets.
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Furthermore,
F
th
under
d no circumstances
i
t
shall
h ll any Certificateholder,
C tifi t h ld
the Trustee or the Delegate have any right to cause the sale or
other disposition of any of the Trust Assets except pursuant to the
Purchase Undertaking Deed and the sole right of the Trustee, the Delegate
and
d the
th Certificateholders
C tifi t h ld
against
i t XX shall
h ll be
b to
t enforce
f
th obligation
the
bli ti off
XX to pay the relevant Exercise Price under the Purchase Undertaking Deed
and otherwise perform its obligations under the Transaction Documents.
Litmus test to identify role of asset in Sukuk
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We only need to ask these two simple questions:
1.
If there is a default, can the investors deal with the asset i.e.
can the investors dispose the asset? Where in the
documents is this stated?
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2.
If something
thi goes wrong with
ith the
th assett itself,
it lf will
ill the
th
investors return be affected? Or will the investors’ return be
uninterrupted?
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If answer to both questions is “NO”, then it is an asset based
d l because
deal
b
assett hhas no genuine
i role
l iin th
the structure
t t
With special thanks to Khalid Howladar of Moody's Dubai
Test of Ownership in Securitization
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In the US, true sale is defined by FAS140. It highlights the
following criteria for a transfer to be considered a sale :
SPV is bankruptcy remote
Originator surrender control over the asset
Transferee can pledge/resell asset
i.
ii.
iii.
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On March 31, 2009 IASB issued ED on Securitization:
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de-recognition will be allowed only in 3 situations
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(a) where all risks and rewards are transferred;
(b) where the transferee has the practical ability to re-sell the
asset for its own benefit; and
( ) where
(c)
h
th
there iis no continuing
ti i iinvolvement
l
t att allll
Source: http://www.vinodkothari.com/secnews_309.htm#IASB_changes_in_accounting_norms
Shariah Dilemma…
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Perfecting the transfer of ownership is not important,
however if without the perfection, the Sukukholders
cannot deal with the asset, what should be done?
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“Asset” in asset based Sukuk is only to facilitate Shariah
requirement, it does not provide protection to
S k kh ld
Sukukholders.
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Can th
C
there be
b Shariah
Sh i h justification
j tifi ti tto allow
ll
assett bbased
d
Sukuk?
Challenges in Asset Backed Sukuk
Investor – need to understand asset risk. Do they want
this?
1.
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Currently there are only 11 asset backed Sukuk
2.
Issuer wants unsecured funding – either because they
have no asset or they do not want to depart with their
asset
3.
GCC market
k – restriction
i i iin fforeign
i ownership
hi
Conclusion
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Should Shari`ah scholars focus only on contractual
relationship or should they look into the legal right of
Sukukholders?
Is Asset Backed Sukuk closer to Shariah requirement?
THANK YOU
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