1 Why Muslims are the World’s Fastest-Growing Religious Group, April 2017. Pew Research Center.
2 Throughout this chapter, the term ‘SWT’ follows the name of Allah (SWT) (which means ‘praise and exaltation’) and the term ‘PBUH’ (which means ‘Peace be upon Him and His Family’) follows the name of the Prophet Muhammad (PBUH). Also, following the names of other venerable Muslims, the term ‘RA’ (which means ‘May Allah (SWT) be pleased with him’) is used. These are terms used by Muslims as a mark of veneration and respect.
3 The Qur’an must be interpreted in light of the exegesis (tafsir and plural tafasir) of the Qur’an, the most notable being Imam as-Suyuti’s (RA) Tafsir, Ad-Durr al-Manthur Fi’t-Tafsir Bi’l Ma’thur.
4 Each saying, act, or approval of the Prophet (PBUH) is called a Hadith (singular of Ahadith) and these have been collated according to stringent rules most of which are documented in the six canonical collections (as-Sihah as-Sittah), which include Sahih Bukhari, Sahih Muslim, Sunan al-Sughra, Sunan Abu Dawood, Sunan al-Tirmidhi, and Sunan Ibn Majah.
5 Of the Sahabah, Imam Ali ibn Abi Talib (AS) has contributed significantly to the development of the tafasir of the Qur’an, fiqh, usul al fiqh, and the Islamic normative sciences. The contributions of Imam Ali (AS) have been such that the Prophet (PBUH) was reported to have said in the hadith narrated by Ibn Abbas (RA) as is documented in Al-Mustadrak alaa al-Sahihain Hakim, ‘I am the city of knowledge and Ali is its gate.’
6 Ijtihad means the individual interpretation of sharia’a principles by mujtahids to infer expert legal rulings from foundational proofs within or without a particular madhab.
7 For a general discussion on usul al fiqh, see Prof Ahmad Hasan, The Principles of Islamic Jurisprudence, the Command of the Sharia’ah and Juridical Norm (Adam Publishers and Distributors, 2005).
8 (80–150 ah/699–767 ce). Imam Abu Hanifa (RA) is known in the Islamic world as ‘The Greatest Imam’ (al-imâm al-a`zam) and his school has assisted with the development of the principles of Islamic finance not least because of its application of qiyas.
9 (93–179 ah/712–795 ce).
10 (150–204 ah/767–820 ce).
11 (164–241 ah/780–855 ce).
12 Al-Jami as-asghir, Jalal ad-Din as Suyuti.
13 In England, there is no express requirement for regulatory approval of a sharia’a supervisory board; however, in an application to the Financial Conduct Authority or the Prudential Regulation Authority to become authorized as a bank, the relevant bank would need to indicate whether the members of the sharia’a supervisory board would perform an executive or an advisory role. To the extent an advisory role is to be performed, the bank would not need to apply for each member to be an ‘approved person’. The competence of the members of the sharia’a supervisory board would still be relevant to determine whether the bank is fit and proper to be authorized. To the extent that the sharia’a supervisory board would perform an executive role, then the bank would need to apply and meet the requirements of the Financial Conduct Authority for each member to be an approved person, including the requirement as to competence and capability.
14 For example, if a financier charges a late payment fee when their client is in default, this is not typically retained by the financier and is instead donated to charity.
15 Qur’an, Surah Al Baqara 2:275, Qur’an, Surah Al Baqara 2:276-280, Qur’an, Surah Al-Imran 3-130, Qur’an, Surah An-Nisa 4:161, and Qur’an, Surah Ar-Rum 30:39.
16 Majma al-Zawa’id, Ali ibn Abu Bakr al-Haythami (vol. 4, 117).
17 For a detailed study of riba and a discussion of the related fatwa of the various madhabs, see Wahbah Al-Zuhayli, Financial Transactions in Islamic Jurisprudence (tr. Mahmoud A. El-Gamal; rev. Muhammad S. Eissa) (Dar Al-Fikr, 2003), Vol. 1, chapter 10 (‘Al-Zuhayli’).
19 For a detailed discussion of gharar, see Al-Zuhayli 82–7.
20 Examples of Islamic forward contracts include bai salam and istisna’a. On the other hand, conventional forward contracts and futures are not permitted, as the object of the sale may not exist at the time the trade is to be executed and are therefore also considered akin to qimar.
21 For a detailed discussion of mudarabah, see Al-Zuhayli, chapter 28.
22 For a detailed discussion of musharaka, see Al-Zuhayli, chapter 21.
23 Where the financier does not disclose the cost of the asset and the value of the margin charged, such a transaction is called a musawama. The musawama has recently been adopted in the context of sharia’a-compliant hedging.
24 Note, however, that the majority of the mujtahids have ruled that an arbun is a forbidden type of sale for contradicting the Sunnah, and containing gharar as the buyer of the asset may or may not purchase the asset at a future date (see Al-Zuhayli, 99–100). Recently, arbun has been used to mirror conventional covered call options giving the holder the right to buy a fixed quantity of an underlying asset on or before a specified date in the future.
25 A variation of Commodity murabaha, which is referred to as tawarruq, is where the intention of the client is not to own the commodity but to sell it instantaneously and obtain the required funds using one single transaction where the bank buys from, and sells the commodity back to, the broker as the client’s agent. Tawarruq is considered to be a makruh (reprehensible) sale in the opinion of Imam Malik (RA); however, it has been accepted as a financing technique by contemporary sharia’a scholars in the absence of a viable alternative.
27 For a detailed discussion of ijarah see Al-Zuhayli, chapter 13.
28 This is subject to the payment of advance rentals: see paras 11.51 and 11.52.
29 The lessee will remain responsible for any routine maintenance and repair of the Islamic assets.
30 The use of sukuk in the context of a multi-sourced project financing is discussed further at para. 11.64 et seq.
31 For further details in relation to the conventional project finance structures, see Chapter 2.
32 For example, the Sadara Integrated Chemical Project, located in Saudi Arabia (June 2013), which featured a wakala–ijarah facility, an istisna’a–ijarah facility, and a sukuk facility.
33 The wakala–ijarah facility structure was introduced in the Shuaibah IWPP located in Saudi Arabia (December 2005) and subsequently also applied in the Marafiq IWPP located in Jubail, Saudi Arabia (May 2007), the Al Dur IWPP located in Bahrain (June 2009), and the PP11 IPP (June 2010). An istisna’a–ijarah structure was applied in the Qatargas 2 LNG project located in Qatar (December 2004), in the Rabigh refinery located in Saudi Arabia (March 2006), and also in the PP11 IPP.
34 For example, the Sadara Integrated Chemical Project located in Saudi Arabia (June 2013) and the SATORP Jubail Export Refinery Project located in Saudi Arabia (June 2010).
36 Some sharia’a scholars have not favoured a mechanism where the project company would hold title to the assets on behalf of the IFIs, as one effect of this is that the IFIs become insulated from ownership risks in respect of the Islamic assets.
37 On a termination of the istisna’a, the IFIs will be responsible for repayment of any advance rentals received from the project company as further discussed later in the chapter.
38 The Convention on the Law Applicable to Contractual Obligations 1980 (the ‘Rome Convention’) also requires that a governing law of an agreement must belong to a country, and sharia’a does not belong to a particular country, although it has been adopted by countries such as Saudi Arabia.
39 See Shamil Bank of Bahrain v Beximco Pharmaceuticals Ltd  2 All ER (Comm) 849. This approach was reaffirmed in a recent English High Court case, Dana Gas PJSC v Dana Gas Sukuk Ltd and others  EWHC 2928. Dana Gas (an issuer based in the UAE) attempted to render its mudarabah sukuk unenforceable on a number of grounds, one of which was that the sukuk were not sharia’a-compliant. Although Dana Gas had sought to bring proceedings to adjudicate on this matter in the Sharjah Federal Court of First Instance, a number of the sukuk documents were governed by English law, and so Dana Gas had also sought and obtained an interim injunction in the English High Courts preventing the sukuk holders from declaring an event of default or dissolution event in relation to the sukuk. In its injunction claim, Dana Gas referred to the Ralli Bros principle, which provides that an English law contract that requires performance of an act that is unlawful in the place of its performance will not be enforced by an English court. On 17 November 2017, the English High Court ruled against Dana Gas on all grounds.
40 Case No. 12-11076 (SHL) (Bankr. S.D.N.Y.).
41 However, the precedential value of the Arcapita bankruptcy court’s refusal to consider whether the financing was sharia’a-compliant may be limited given that the district court dismissed the objector’s appeal of the bankruptcy court’s approval of the financing (along with an appeal asserted by the objector of confirmation of the debtors’ chapter 11 plan of reorganization) as equitably moot.
42 A similar disclaimer is also included in any prospectus issued by an issuer of a sukuk.
43 The rule that the law applicable to proprietary aspects of an asset is the law of the jurisdiction where the asset is located.
44 This approach has been supported by Mufti Taqi Usmani in, An Introduction to Islamic Finance (Maktaba Ma’ariful Quran, 2007) 168–71.
45 The lease agreement may contain a mechanism to adjust the first rental payment date if the scheduled operation date is postponed for certain reasons up to a long stop date. An alternative is for the lessor and lessee to enter into an ‘Agreement to Lease’ which operates during the construction phase and obliges the lessor and lessee to enter into the lease agreement once the operations phase actually begins.
46 The definitions used in the Islamic common terms agreement will be revised so that ‘interest’ is replaced with ‘commission’ or ‘profit return’, for example. The parties to this agreement will also only include the IFIs and the Islamic facility agent.
47 The Sales Undertaking will also cover the circumstance where the project company elects to replace or repay a single IFI in specified circumstances, such as where the relevant IFI requires the project company to increase the rental consideration payable to take account of a tax deduction payable in respect of that payment by the project company.
49 For a critique of the reasons given by such scholars, see Mufti Taqi Usmani, An Introduction to Islamic Finance (Maktaba Ma’ariful Quran 2007) 131–40.
50 However, perhaps as an exception to this general approach, in the project sukuk issued as part of the Sadara Integrated Chemicals Project and the SATORP Jubail Export Refinery Project, each located in Saudi Arabia, to ensure the project sukuk could be marketed successfully to the discreet class of investors in Saudi Arabia who purchase securities of this type on a ‘buy and hold’ basis, the sukuk was largely afforded pari passu status with the other senior debt, which meant that the certificate holders (through the SPV Issuer): (i) benefit from the maintenance covenants (as well as the incurrence covenants) that bondholders would not normally benefit from in a typical Rule 144A or Regulation S issuance; (ii) have the right to early redemption of the certificates upon a mandatory redemption of any of the senior facilities; and (iii) share in the project financing security on a pari passu basis with the other senior creditors.
51 In the UK, this imbalance has been addressed by legislation relating to ‘Alternative Finance Arrangements’ which is contained in Chapter 6 of Part 6 of the Corporation Tax Act 2009 (CTA) for companies within the charge to UK corporation tax and in Part 10A of the Income Tax Act 2007 (ITA) for individuals and others within the charge to UK income tax. Under this legislation (see sections 507, 509, 510, and 513 of CTA 2009 and sections 564G, 564L, and 564M of ITA 2007, in particular), where the arrangements meet certain conditions (including that they are listed on a recognized stock exchange or admitted to trading on a multilateral trading facility operated by an EEA-regulated, recognized stock exchange), amounts paid by issuers to certificate holders (other than those representing the principal amount originally paid by the certificate holders to the issuer) are generally deductible by the issuer under the loan relationships regime, and taxable in the hands of the certificate holders as interest (if the relevant certificate holder is subject to UK income tax) and as interest under a loan relationship (if the relevant certificate holder is subject to UK corporation tax).
52  EWHC 2928 (Comm).
53 The musharaka–ijarah structure was adopted in the Al Waha project located in Saudi Arabia (December 2006).