Hammamet city, March 28-29, 2015 - The Tunisian Association for Islamic Economics organized, in collaboration with the Islamic Research and Training Institute (IRTI), the Islamic Development Bank (IDB) and the International Shari'ah Research Academy for Islamic Finance (ISRA), an academic seminar titled: “Islamic Sukuk between Shariah Legitimacy and Legal and Accounting Requirements”, which was held at Sultan Hotel in Hammamet city, Tunisia.

The Tunisian Association for Islamic Economics organized, in collaboration with the Islamic Research and Training Institute (IRTI), the Islamic Development Bank (IDB) and the International Shari'ah Research Academy for Islamic Finance (ISRA), an academic seminar titled: “Islamic Sukuk between Shariah Legitimacy and Legal and Accounting Requirements”, which was held on 7-8 Jumada II, 1436 AH/28-29 March, 2015 at Sultan Hotel in Hammamet city. 

The conference was attended by researchers and scholars, who delivered the following papers: 

  • Dr. Ezzedine Khoja of Zitouna Bank: paper title: Islamic Sukuk in Tunisia.
  • Dr. Reza Saadallah of the Tunisian Association for Islamic Economics:  Islamic Sukuk: A General Introduction.
  • Dr. Said Bouheraoua of the International Shari'ah Research Academy for Islamic Finance (ISRA): Shariah Issues related to Sukuk Issuance.
  • Dr. Abdul Sattar Khuwaylidi of the International Islamic Centre for Reconciliation and Arbitration: Legal Aspects of Sukuk Issuance. 
  • Dr. Mohamed Beltagy of the Egyptian Society for Islamic Finance: Accounting Problems Related to Sukuk Issuance. 
  • Prof. Dr. Mohamad Akram Laldin & Dr. Sa'id Adekunle Mikail of the International Shari'ah Research Academy for Islamic Finance (ISRA): Operational Challenges of Sukuk Issuance: An Exploratory Analytical Study. 
  • Dr. Sami Al-Suwailem of the Islamic Development Bank (IDB): Alternatives and Solutions to the Challenges of Sukuk.



After listening to the academic papers presented at the symposium and the subsequent discussion and exchange of ideas between Shariah scholars, professionals, academics, and experts, the audience affirmed the importance of such forums on the field of Islamic economy in general and on the Islamic finance industry in particular. They emphasized the gravity of these Shariah, legal and accounting challenges in the area of sukuk and the urgent need to develop a process to diagnose these challenges, analyze them objectively, and undertake an extensive study for the rehabilitation of the sukuk industry. This would help to overcome the challenges and difficulties through a scientific and practical approach that does not contradict the core principles of this industry.

After extensive discussion, the participants recommended the following: 

Firstly: There is a need to distinguish between sukuk which are based on the ownership of the assets at the time of issuance and sukuk which finance future projects or activities. This is because there is an issue of transfer of ownership that is only raised in the first type.

In all the cases, the sukuk holders’ ownership of the sukuk assets is considered the cornerstone of the sukuk issuance. Ownership must be real and acceptable from both the Shariah and legal perspectives. The Shariah parameters for ownership, which are based on the legal maxim “Liability accompanies gain”, must apply to sukuk ownership. That is in line with the relevant decisions of the various fiqh academies.  

Secondly: The sukuk holders’ ownership of the sukuk assets must be established in the prospectus in a clear manner that preserves the rights of the sukuk holders.

Thirdly: The government agencies having oversight authority of sukuk are called upon to take appropriate measures to regulate them—whether they are sovereign sukuk or for the benefit of the private sector—to make their implementation effective and to provide a legal and regulatory environment for their issuance. This includes the formation of Shariah and legal structures required for their legitimacy. 

Fourthly: The body of jurisprudential research and thought in the field of Islamic financial instruments in general and sukuk in particular needs to be strengthened. All the Islamic finance products needed to be collected in a registry that can serve as the common reference adopted in Islamic finance.

Fifthly: The objectives of the Shariah (maqasid al-Shariah) need to be observed in all Islamic financial transactions. The nature and requirements of contracts must be given consideration and mere adherence to outer forms and appearances must be avoided as the latter harms the reputation of the Islamic financial industry and hides its realities, benefits and the unique features that distinguish it from conventional finance. 

Sixthly: There is a need to mitigate risk in order to popularize sukuk and promote them on a large-scale. One way to achieve that is by effective use of the third-party guarantee as per the conditions contained in the resolutions of the International Islamic Fiqh Academy. Another is to take advantage of the provisions of the takaful insurance system.

Seventh: [The participants] call for consideration of the alternatives offered to promote diversity in the sukuk market. Advantage should be taken of the hybrid securities that serve the goals of Islamic finance.

Eighth: Research should be promoted on academically precise themes in the field of sukuk, including ownership, risks, hedging, trading of sukuk instruments, and other issues that highlight the importance of sukuk instruments, their mechanisms, and the features that distinguish them from conventional bonds.

Ninth: [The participants] call on Islamic financial institutions which offer sukuk for trading in the global financial markets to be aware of the issue of the time periods set for trading in sukuk, taking into account the relevant Shariah regulations for trading.  

Tenth: [The participants] call on financial market bodies to look into the idea of organizing a market devoted to trading sukuk, which will contribute to stimulating the trade in sukuk. Such a market would take into account the nature of sukuk and the Shariah requirements for them, in accordance with the decisions of the fiqh academies and the Shariah standards of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).

Eleventh: [The participants] call for the requisite attention to be paid to the accounting aspects of sukuk. Consideration needs to be given to their special features and parameters, especially the accounting side of registering the sukuk assets in financial centers and of calculating their depreciation.

Twelfth: Proper attention must be paid to the wording of the prospectus. The relevant authorities are invited to prepare a standardized prospectus that reflects the industry’s point of view on Shariah and technical issues and that can be referred to as a model. The fatwa that is issued approving the structure and documents of a particular sukuk must be made part of the legal documents. In addition, it should be explicitly stated that all the other documents are subject in their application and interpretation to what has been mentioned in the fatwa.

Thirteenth:  [Concerned parties] should make sure that any sukuk issuance is compatible with the Shariah standards and the resolutions of the fiqh academies.

Fourteenth: [The participants] call for the establishment of a neutral rating agency that examines the extent to which sukuk instruments comply with the provisions and principles of Islamic law and then rates them accordingly.

Fifteenth: [The participants] call upon the Islamic Development Bank to develop a systematic framework for sukuk which will serve as a procedural manual for member countries.

Sixteenth: [The participants] call upon all the bodies and institutions which support the Islamic financial industry to develop a strategic plan aimed at establishing an integrated system that is different from the bond issuance system and that takes into account the distinguishing characteristics of sukuk.

Seventeenth: There is a need to build an integrated system for all the stages of issuing sukuk based on musharakah, including their rating, pricing and marketing in order to increase the acceptance of sukuk instruments and their promotion in the capital markets.

Eighteenth: Appreciation is expressed for the work done by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) in reviewing the standard on sukuk. The participants call for making sure it accommodates all the types of sukuk and transcends all the Shariah issues that are observed in the practical applications of sukuk instruments.  

Nineteenth: [The participants] call upon the Supreme Council of Accounting in Tunisia to issue an accounting standard specifically for sukuk that complements Accounting Standard No. Seven Regarding Investments (Stocks and Bonds) by taking into account the unique features of sukuk instruments. 

Twenty: [The participants] call upon the International Islamic Fiqh Academy to continue its efforts to systematically define the Shariah parameters for the right to the usufruct of a tangible asset as a formula enabling sukuk holders to acquire ownership of the usufruct right to the sukuk assets, while the government’s ownership of the tangible asset is also maintained, in the issuance of sovereign sukuk. This arrangement would also involve appointing a governmental entity or a private project management as an agent to administer the funded projects for the benefit of the sukuk holders until the maturity date of the sukuk. 

Twenty one: [The participants] call upon the International Islamic Fiqh Academy and the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) to review the resolutions and standard on diminishing partnership (musharakah mutanaqisah) so as to allow the sukuk holder to redeem the sukuk at its nominal value on the condition that profits are realized. This is in consideration of the fatwa that has been issued to that effect by some Shariah advisory bodies. This calls for careful study of the legal arguments in support of this opinion in order to determine its validity from a Shariah perspective, considering that the realization of profits definitely means that the capital has been preserved.       

Twenty two: [The participants] call upon private parties who wish to issue investment sukuk to use the formula that delivers real and legal ownership of the assets to the sukuk holders, after which the issuer or special purpose vehicle is appointed as an agent to exploit the assets for the benefit of the sukuk holders. This agency could be structured as either agency for services or investment agency. This is in order to avoid the suspicion that the arrangement is a sale and buyback (‘inah) of either usufruct or tangible assets.  

Twenty three: [The participants] call upon the governmental and private issuing parties to avoid all forms of guarantee or commitment to purchase the asset at nominal value (or a pre-agreed value) when the sukuk reaches maturity. They should instead use the alternative of the market price or a price determined by the financial markets authority at that time. It is possible to reduce the risk by resorting to the allocation of reserves for profit adjustment or for investment risk to address positive and negative fluctuations in the yield. This would reassure sukuk holders that they will recover their money.