Application of shari`ah principles of legal and beneficial ownership in debt-based sukuk

Abstract

Since the formation of Islamic Capital Market (ICM) at the forefront of global initiatives to establish sustainable, viable, and feasible financial products, various financial innovations have emerged to comply with Shariah principles, such is the Islamic securitisation known as “sukuk”. Basically, sukuk is a less expensive means of raising funds as alternative to the conventional securitisation. It differs from its global counterparts, practically due to its riba free transaction and other Shariah commercial principles. Despite the formation of sukuk as Shariah compliant product, it faces some controversies which articulate some of its structures not to differ totally from the conventional products. The distinction of ownership to the underlying assets in various sukuk structures as “legal” and “beneficial” have been argued and misunderstood as a modern legal formality adopted from the conventional models and therefore, labels these products not to adhere totally with Shariah principles. Verily, this dissertation examines the misconception of legal and beneficial ownership in some sukuk structures (debt-based sukuk) as a subject to verification and re-examination of ownership under the microscope of Islamic law. In sum, the research concludes that the misconception that circles both concept of “legal” and “beneficial” ownership as applied in sukuk is inaccurate. Both legal and beneficial ownership are verifiable under the ambit of ownership principles in Islamic law, whereby both concepts equate the concept of Shariah principles of ownership as “milk al-tam” and “milk al-manfa'ah” respectively. However, the application of beneficial ownership as analogous to milk al-manfa’ah in some sukuk structures (asset-based) may potentially lead to non-compliance with the Shariah principles of ownership.