There is a global surge in the amount of Shari
ˉ‘ah-compliant notes or sukuk in 2012, with
an estimate of about US$138 billion according to the Standard and Poor’s report. It is
expected that global sukuk issuance may exceed US$100 billion in 2013. According to
Ernst & Young forecast, global sukuk demand would be in excess of US$600 billion by
2015 (Ernst & Young, 2012, p. 11). There is a great deal of sukuk issuance across the
world, which has mainstreamed Islamic nance practices in the world economy (Shaikh,
2012). “Once largely restricted to the Middle East and Southeast Asia, Islamic nance
and investment now permeate markets throughout Europe, Asia and even the USA”
(Abdel-Khaleq and Richardson, 2006, p. 409). However, amidst these promising
successes are some legal and regulatory challenges that are often shrug off until the
chips are down. Rather than being reactive, which usually does not produce sustainable
results, it is better to be proactive, particularly in multi-million dollar transactions that
are debt-based (Oseni, 2013).
While the Shari
ˉ‘ah-compliant debt certicates have benetted from the thawing debt
market, the downside of such success calls for much concern. It goes without saying that
the global Islamic nance industry has witnessed a number of sukuk defaults and near
defaults (Elmalki and Ryan, 2010). For the purpose of this paper, sukuk default occurs
when the sukuk issuer has failed to meet its debt obligations under the underlying
contract in accordance with the certicates issued to the investors. When such a sukuk
issuer cannot make repayments to the sukuk holders, a situation of a looming default
sets in. But when reasonable steps have been taken to forestall such default through debt
restructuring or an outright bailout, it can simply be referred to a situation of near sukuk
default. While the focus of this paper is instances of near sukuk defaults and how they
can be properly managed to avert a multitude of litigated cases, references are made to
situations of actual defaults.
Against the above backdrop, this paper is organized into six major sections. Besides
the introduction, the second section gives a brief explanation on the research
methodology. The third section examines the inextricable nexus between dispute
management and debt restructuring in Islamic nancial transactions, particularly when
the underlying commercial relationship is premised on debt-based transactions.
Furthermore, the fourth section presents four case studies of near sukuk defaults and the
way they were handled, with a view to developing a framework for handling related
cases. The fth section briey examines the Rome Convention 1980, cross-border sukuk
and the treatment of Shari
ˉ‘ah in the English Courts in matters involving Islamic nance.
The sixth section focuses on Islamic nance regulation and the need for a more
sustainable global industry through a proper dispute management framework for near
sukuk defaults. This seeks to protect the investors, and ensure certainty in Islamic
nance transactions. Finally, the seventh section gives the conclusion, summary of
ndings and some policy recommendations.
A brief explanation of the methodology used in this study to justify the central
hypothesis may be essential to set the tone of the discussion. The study uses the case
study methodology to determine the impact of debt restructuring in instances of near
sukuk default and the process taken to reach a win-win settlement among the parties.
The case study method seems to be more appropriate for complex issues that are
A case study of