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Oliver Ali Agha Founding & Managing Partner Agha & Co, Dubai and Agha & Shamsi, Abu Dhabi The World’s First Shari’ah Compliant Law Firms
Fable • Three bags of gold. . .
Qur’anic mandate to strive “Those believers who stay at home, apart from those with an incapacity, are not equal to those who commit themselves and their possessions to striving in God’s way. God has raised such people to a rank above those who stay at home – although He has promised all believers a good reward, those who strive are favored with a tremendous reward above those who stay at home - ” [4: 95 AH]
USURY - Disdained • The Old Testament casts the usurer with blood shedders, oppressors, rapists and idolators (Ezekiel 22, Verse 2). • In the New Testament, Jesus said: “Love ye your enemies, and do good and lend, hoping for nothing again. ” (Luke 6, Verses 34 -35). • Aristotle, Saint Thomas Aquinas condemned usury; Adam Smith and John Maynard Keynes had their misgivings about usury.
Usury • Tantamount to Idolatry (‘ex-nihilo creation’) • Hadith equate such to idolatry • Judaic/Christian theological views similar and support the proposition that relying on interest leads to making money God
Riba “Those who swallow usury cannot rise up save as he ariseth whom the devil hath prostrated by (his) touch. That is because they say: Trade is just like usury; whereas Allah permitteth trading and forbiddeth usury. He unto whom an admonition from his Lord cometh, and (he) refraineth (in obedience thereto), he shall keep (the profits of) that which is past, and his affair (henceforth) is with Allah. As for him who returneth (to usury) - Such are rightful owners of the Fire. They will abide therein. ” (Surah 2, Verse 275, Holy Quran)
Sukuk post Dubai World • Sukuk are certificates representing derivative ownership in underlying assets. AAOIFI guidelines make clear that sukuk DO NOT represent ‘DEBT’ to certificate holder. • Where sukuk are structured as conventional bonds and include guaranteed returns (interest) and guaranteed return of capital through purchase/sale undertakings – such constructs of questionable Shari’ah validity. • Generally, sukuk need to be redeemed at market value, not face value.
Insolvency/Bankruptcy of Islamic Financial Institutions (IFIs) • IFI Insolvency/Bankruptcy means that assets entrusted to IFI (and IFI assets) depleted and insufficient to cover operational costs. • Unless negligence on part of IFI’s management, raab al maal (investors in IFIs) lose pro-rata amounts of investment to reflect losses. Investors may get reimbursement of certain sums from federal insurance schemes.
Just Debts • Commercial contracts and permissible debt arrangements (e. g. Qard Hasan) NOT impermissible interest (riba) elements or disguised interest. • Under Shariah, riba is clearly condemned, so can never form the basis of an enforceable contractual arrangement. This prohibition would extend to Islamic financing arrangements that are deemed ‘replication of conventional finance’ by Shariah judges.
Payment Priorities? • Naturally, different countries will take a particular approach but it can generally be noted that: • Payments from insolvent estate would first go towards “statutory creditors, ” (these likely to be laborers, nonmanaging employees, rents owed for past and current year, taxes, basic sustenance of bankrupt family, wife’s dowry, bankruptcy costs and subsequently to creditors (secured creditors, supply, and unsecured creditors).
How are Secured Assets Treated? • Secured assets of creditors likely to be generally recognized provided (i) security transparently disclosed at the outset and (ii) effecting security does not result in manifest unfairness in adjudication of the insolvency
Questions? Contact: Oliver Agha oliver. agha@aghaandco. com +971 50 811 3734 (mob. ) www. aghaandco. com
This presentation is solely intended for educational purposes and should not be relied upon for any particular query. THIS PRESENTATION IS PROPRIETARY AND CONTENTS OF THIS PRESENTATION MUST NOT BE REPRODUCED OR CIRCULATED WITHOUT THE EXPRESS WRITTEN CONSENT OF AGHA & CO.