The last weeks we have read about criticism in regard to the Sharia compliance of the Sukuk program of the investment bank Goldman Sachs:
< Mohammed Khnifer reveals, after examining the offer circular thoroughly, three possible flaws in the overall structure.
1- Strong indication from the proposed structure and the prospectus as well that the sukuk is not, as they claim, Murabaha, but a Reverse Tawarruq.
2- Strong indication that Goldman will be using, eventually, the proceeds to fund its conventional activities.
3- The so called Murabaha sukuk is listed on the Irish Stock Exchange (ISE). There are some concernes on how the ISE will make sure that the securities will be traded at par value.>>
Some remarks to this discussion:
1- What Goldman Sachs is apparently doing is to purchase commodities from the Issuer, a Special Purpose Vehicle collecting the Funds from the Islamic investors. This per se is not yet called a Tawarruq. Once Goldman Sachs sells this commodities, most likely spot/immediately, then it becomes cash or 'monetized', meaning a Tawarruq. This is for practical purposes to be expected. Not all forms of Tawarruq are prohibited, some forms are subject to differences of opinion of the scholars but all forms are more or less disliked (makruh) and shall be avoided (AAOIFI even published a standard on Tawarruq and its conditions). Goldman Sachs has so far I was able to see applied best industry practice; in other words they do according to best standards what all conventional banks are doing. The main difference is that Goldman is issuing a Sukuk, and making the documentation public, while the market typically is doing Interbank placements with a legal documentation exchanged between the parties only.
2- Goldman Sachs will most likely indeed use the proceeds for their conventional needs; and so are doing most other conventional banks (if not Islamic windows) when receiving funds from Islamic financial institutions. So, the blame should then be on a wider scale, and not specific to one company only.
It is difficult for many market observers to understand the legal argument that loaning to a conventional institution (even interest-free) is not permissible, while a Murabaha facility, being a sale with deferred payment, is deemed permissible. The line is drawn from an Islamic legal perspective from the concept of ownership. A sale passes the ownership and therewith the responsibility over to the buyer, who then is accountable to his creator, and no longer the seller.
3- The listing on an exchange can also be made for operational reasons, like settlement, regulatory requirements and so on. A listed and rated security can easier be distributed to various parties, than negotiating a sales contract with each of them (hard to believe: every single Interbank placement in the Islamic finance industry is contractually negotiated and re-negotiated). Creating a security might be a value add on this field, and may be the Islamic finance practionners shall discuss whether it could help to standardise funding and placement in our industry.
For those wishing to delve deeper into the prospectus, just download it:
Michael Saleh Gassner