Page 15 - Valentino Cattelan - In the name of God: managing risk in Islamic finance

IANUS n. 26-2022 ISSN 1974-9805

by Shari‘ah scholars in Islamic finance, as well as the recommendations by the
Accounting and Auditing Organization for Islamic Financial Institutions
(AAOIFI). 53
For instance, the principle al-kharaj bi-l-daman as ‘risk linked to the res’ finds a
direct application in the definition of sukuk, Shari‘ah-compliant investment
54
certificates, according to Art. 2 AAOIFI Shari‘ah Standards. Here investment
sukuk are defined as «certificates of equal value representing undivided shares in
ownership of tangible assets, usufruct and services or (in the ownership of) the assets
of particular projects or special investment activity» [italics not in the original text]
and, according to Art. 5/1/2, «it is permissible to issue certificates for (to securitize)
assets that are tangible assets, usufruct and services by dividing them into equal
shares and issuing certificates for their value. As for the debts owed as a liability, it
is not permissible to securitize them for the purpose of trading».
The reference to the ownership of tangible assets, usufruct, and services as
‘source’ of legitimate profit for the sukuk holder is clearly related to the
interpretation previously given of the principle al-kharaj bi-l-daman; the reference
to ‘undivided shares’ finds justification in the undivided character of the reference
pooling; the criteria of primacy of real economy, transactional equilibrium and
profit-loss sharing clearly emerge as well.
The same principle has been confirmed in a resolution by the AAOIFI Shari‘ah
Board (13-14 Feb 2008, Bahrain) on the issuance and trade of sukuk, which has
brought about massive consequences on the market of Islamic securities,
specifying that «sukuk, to be tradable, must be owned by sukuk holders, with all
rights and obligations of ownership, in real assets, whether tangible, usufructs or
services, capable of being owned and sold legally» [italics not in the original text].
The meaning of the ruling, with its reference to the ownership of the underlying
assets, reflects a logic where commercial dealings are part of a ‘reality’ (haqq) created
by God: accordingly, the ‘incorporation’ of the risk in real assets, through their
ownership or possession, guarantees the balanced distribution of gains according to
the responsibilities assumed by the parties (al-kharaj bi-l-daman).
At this point, one may say that risk does not exist in Islamic finance as ‘unbundled
commodity’ the way it does in conventional finance: on the contrary, since «risk of
loss is deemed to be a characteristic either of legal ownership or possession, [… it is]
not deemed property that can be exchanged for other property».
55
Thus, in Islamic finance, the risk is shared when capitals or workforce are put

53 The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) is a
non-for-profit organization established on 26 Feb 1990, aimed at proposing accounting, auditing,
th
governance, ethics and Shari‘ah standards for Islamic financial institutions and the industry
(www.aaoifi.com): see, for instance, previous note 49.
54 In the global financial market investment sukuk are usually based on the contracts of mudaraba
or musharaka; in the case of the sale or rent of the assets, other structures are applied (i.e. sukuk al-
murabaha or sukuk al-ijara).
55 FADEL, The regulation of risk in Islamic law, the common law, and federal regulatory law, cit., 83.

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