Proposed Model
Shariah Board Resolution
Types of Ijarah Sukuk
1) Seller and lessee are different persons
In this case, the issuer of securities (SPV) buys the required asset from the producer or seller by selling the securities and making funds on behalf of the owners of securities, and then leases the asset to those who demand for it. Different models of Ijarah contracts are available:
1-1) Ordinary Ijarah contract
In this case, a particular asset is leased to the lessee against a specified rent then the issuer shall take delivery of the same asset on maturity date and sell it in the market. However, the issuer shall take a part of this rent as his own attorney's fee and pay the rest to the owners of securities. The revenue of the owners of securities shall include the monthly rents plus the difference between buying price and selling price of the asset on maturity date of Ijarah contract which could be positive or negative.
Committee believes that this would be permissible in Islamic jurisprudence and could be applicable.
1-2) Ijarah with put option
In this case, a particular asset is also leased to the lessee against a specified rent and it is stated in the contract that the issuer shall have the right to sell the asset to the lessee in a specified price on maturity date.
On that date, the issuer shall, according to his right, sell the asset to the lessee or take delivery of which and sell it in the market. However, the issuer shall take a part of the rent as his own attorney's fee (Wakalah Fee) and pay the rest to the owners of securities. The revenue of the owners of securities shall include the monthly rents plus the difference between buying date which is quite predictable.
Committee believes that this would also be permissible in Islamic jurisprudence and could be applicable.
1-3) Ijarah Al - Muntahi Bi- ttamlik : (Ijarah with condition to make somebody the owner)
Here, a specific asset is given to the lessee against a specified rent for a specified period of time and it is stated in the contract that the ownership of the Ijarah shall be changed in favor of the lessee on maturity date.
The issuer, in compliance with a particular provision to the contract, shall change the ownership of the asset in favor of the lessee. However, the issuer shall take a part of the rent as his own attorney's fee and pay the rest to the owners of securities. So, the revenue of the owners of securities shall include the monthly rents, which is usually higher than the previous models of Ijarah contract. It means that the value of the asset is also combined with the monthly rents. The revenue of the owners of securities shall be quite predictable.
Committee believes that this would also be permissible in Islamic jurisprudence and could be applicable.

2) Seller and lessee are the same
Here, the issuer of securities (SPV), as the Sukukholder's attorney , collects funds of people who have purchased these securities, then purchases the asset of a firm and leases back the asset to the same firm. Different models of Ijarah the asset could also be available in this type.
2-1) Ordinary Ijarah
In this from, a particular asset is leased back to the previous owner against a specified rent and for a specified period of time, then the issuer shall take delivery of that asset and sell it in the market.
Here, the issuer shall take a part of the rent as his own attorney's fee and pay the rest to the owners of securities. The revenue of the owners of securities shall include the monthly rents plus the difference between buying price and selling price of the asset on maturity date.
Committee believes that this would also be permissible in Islamic jurisprudence and could be applicable.
2-2) Ijarah with Put option
In this model, a particular asset is leased to the previous owner against a specified rent and it is stated in the contract that the issuer shall have the option to sell the asset to the previous owner in a specified price on maturity date.
On that date, the issuer shall, according to his right, sell the asset to the previous owner or take delivery of which and sell it in the market. However, the issuer shall take a part o the rent as his own attorney's fee and pay the rest to the owners of securities. The revenue of the owners of securities shall include the monthly rents plus the difference between buying price and selling price of the asset on maturity date which is quite predictable.
Committee believes that this would also be permissible in Islamic jurisprudence and could be applicable.
2-3) Ijarah Al - Muntahi Bi- ttamlik (Ijarah with condition to make somebody the owner)
Here, a specific asset is given to the lessee against a specified rent for a specified period of lime and it is stated in the contract that the ownership of the Ijarah asset shall be changed in favor of the lessee on maturity date. However, the issuer shall take a part of the rent to the owners of securities. The revenue of the owners of securities shall include the monthly rents, which is usually higher than the previous models of Ijarah contracts. It means that the value of the asset is combined with the monthly rents. The revenue of the owners of securities shall be quite predictable.
Committee believes that this model of Ijarah contracts has got two major jurisprudential problems and needs to be surveyed.
First, this contract is the same as Bai' 'Inah which is arguable in jurisprudential view point; and second, it has the problem of Riba trick (Hila).

Subject: juridical aspects of Ijarah sukuk
However, in general, it can be concluded that in all cases in which the issuer buys the asset of a firm on behalf of the owners of securities by selling of securities and making funds and then lease it to the same firm, two models could be applicable:
1) Second transaction (lease) is not a condition in the first transaction (purchase);
2) Second transaction (lease) is a condition in the first transaction (purchase).
The first case is permissible in Islamic jurisprudence but if the second transaction (lease) be a provision in the first transaction (purchase) it might be the subject of Bai' 'Inah, and the its ruling shall be specified when Bai' 'Inah ruling is clear.

Bai' 'Inah in Ijarah Sukuk
There shall be three possible models for Bai' 'Inah to become forbidden and either of which shall provide different results:
1) Being forbidden on the basis of obedience
Here, only those cases mentioned in Islamic sayings shall be considered sufficient and other cases shall be excluded from being forbidden. However, according to this probability neither of Ijarah Sukuk types shall be considered as Bai' 'Inah, because in these cases the second contract shall be of Ijarah nature but in Islamic sayings about Bai' 'Inah the second contract is a Bai' contract
2) Being forbidden because the second contract is a condition in the first contract
According to this model, all cases in which both contracts are conditioned by each other shall be considered as Bai' 'Inah, either the second contract be a Bai' contract or other types of contract. Hence, all cases in which the Ijarah contract is mentioned in Bai' contract as a condition, shall be considered as Bai' 'Inah.
3) Being forbidden because of prohibition of Riba tricks
Here, all cases shall be investigated separately. Every contact in which the objective is personal or a kind of Riba trick shall be Haram (forbidden) and all independent contracts with truly wise and Shari'a compatible objectives shall be Halal (lawful).
According to contents of the above Islamic sayings about Bai' 'Inah, it is concluded that among those three probabilities, the third one shall be permissible and Bai' 'Inah is prohibited on the basis of prohibition Riba tricks.
However, among all types of Ijarah securities, those in which seller and lessee are different shall not bear the possibility of Riba trick or Bai' 'Inah but in those cases in which seller and lessee is one person among different models mentioned, such models of ordinary Ijarah, Ijarah with the right to buy, and Ijarah with the right to sell, there shall be no possibility of Riba trick or Bai' 'Inah but when the purchased commodity is leased back, there shall exist the Possibility of Riba trick and Bai' 'Inah and to remove this possibility, all Bai' and Ijarah contracts shall be simply concluded with no tacit condition (the article added to the contract) resulting in damaging the nature of Ijarah contract.
While Ijarah Sukuk can be designed for new products, it can also be applied for the assets which have already been leased. This shall be applied in such a manner in which the owner of the assets shall give the leased asset to the SPV so that securities are issued upon which and that particular asset be purchased from the previous owner, of securities). However, those banks which have transferred particular assets to their clients in such forms of Ijarah or Ijarah Al-Muntahi Bi- ttamlik may have the opportunity to apply this instrument to sell those assets.

Sessions
Session Number Session Date Description
4 Jun 13 2007
5 Jun 27 2007
6 Jul 11 2007

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