Syndicated and Structured Islamic Finance 89times. The analysis was based on the premise that all investors have equal
co-ownership interests and, furthermore, that each investor is entitled to do
whatever they wish with their interests. On this basis they were entitled to
give instructions (through agreeing to the terms and conditions of the issue)
that amounts due to be paid to them arising from their co-ownership interest
could be paid to other investors in priority to them and/or that all or part of
any amounts due to them couldbe paid to other investors.
Based on this Shari’a analysis and advice, it was then possible to structure
the issue and the documentation such that therewere different classes,
which had different payment priority rights and differentpayment returns.
The result of this structuring was that the requirements of the customer
and the investors were met in a manner that was held to be Shari’a
compliant.
Liquidity facility
While there are certain differences in opinion as to whether a liquidity
facility can be provided in a Shari’a-compliant manner, the structuring of
the issue required that if there was, for example, an administrative delay in
the collection of rentals under theijaraswhich constituted the pool of assets,
such that on a payment date, there were insufficient funds available to pay
the investors, the shortfall would be paid under a liquidity facility. Amounts
drawn under the liquidity facility would be repaid from subsequentijara
proceeds.
In structuring this part of the offering, it was not possible for any loan
facility to be conventional asthe entirestructurehadtobeShari’a-compliant.
Accordingly the facility was structured as being aqard al-hassan. This is a
loan that is acceptable under the Shari’a but one where there is no interest
or other return based on the mere provision of the funds (as this would
amount toribawhich is prohibited). To deal with the requirement of the
lender that it needed some recompense, the Shari’a advisers agreed that
certain payments could be made for administrative services that were being
performed in making available and monitoring the provision of theqard al-
hassanfinancing. Based on this conclusion, therefore, it was possible to
structure such a facility that met therequirements of the various parties.^1
(^1) Since the Tamweel issue, the AAOFI standard onsukukwas issued (in February 2008) and which
considered liquidity facilities. The third paragraph states, in part, as follows: “It is not permissible for the
manager ofsukuk, whether the manager acts as amudarib(investment manager), or asharik(partner), or
awakil(agent), to undertake to offer loans tosukukholders, when actual earnings fall short of expected
earnings.” It is permissible, however, to establish reserves or to provide for the distribution of expected
earnings on account.