Towards the end of 2009, the world was shocked by the “Dubai World” announcement requesting a postponement of a sukuk payment of $3.5 billion due on 14 December on its Nakheel Properties company. The sukuk holders were thrown into total confusion as everybody began to look for a legal way out of this crisis. Lawyers started to look for a way for sukuk issuers and sukuk holders to deal with this crisis, and what legal procedures could be taken in order for money to be recovered in the event of parties not reaching an agreement on postponing the payment. The lawyers, religious figures, and credit rating agencies blamed one another. However what concerns us here is the controversy over the sukuk holders’ limited ability to lay their hands on their assets. It became apparent that UAE law places restrictions on foreigners dealing in sukuk, and while it’s true that the sukuk market is governed by English law, and comes under the jurisdiction of the British court system, the enforcement of this requires the consent of the UAE authorities. This means that sukuk holders are at the mercy of sukuk issuers, limiting their legal options.
The Nakheel Properties case is not the only such case, just the most high profile. The ownership of sukuk is not registered according to the laws of the country in question, but rather ownership is transferred via a special company in order to reduce expenses or get around local laws which forbid or limit foreigners owning sukuk. The religious bodies continue to facilitate this practice, and this is something that needs to be reviewed. A juristic study into the impact of local laws that regulate the ownership process should be conducted to ensure that the sukuk owner is completely legitimate, which is an essential condition in Islamic Sharia law. Is such behaviour religiously permissible, despite the more popular religious opinion that sukuk holders will be exposed to serious loss if sukuk issuers fail to pay?
Islamic Sharia law prohibits harm such as this, for religious rules prohibit harm, reciprocal injury, and Islamic Sharia law says that preventing negative outcomes has priority over pursuing benefits. Does this not include fraud and deception against sukuk owners? The Prophet (pbuh) said “whoever deceives us is not one of us”. Doesn’t conduct such as this prevent customer satisfaction which is the focus of Islamic financial transactions?
In my opinion, I believe that the Islamic Fiqh Academy should devote a session to studying the impact of local laws which forbid or limit the extent of ownership on Islamic Sharia law. Legitimate bodies should also not permit [Islamic financial] products unless this has been subject to legal study and is deemed compatible with local laws and does not facilitate lawyers’ attempts to bypass local laws. These legitimate bodies should also do their utmost to achieve justice between the parties involved in the contract, and they should look after the weaker party that does not play a role in drawing up the contract; which in most cases is the customer.
Nakheel Properties’ sukuk crisis has revealed what was hidden, and brought to light the strengths and weaknesses of this modern Islamic financial tool. True are the words of Almighty God when He says: “It may be that ye dislike a thing, and Allah brings about through it a great deal of good. [Surat An-Nisa; Verse 19].”