Hastings International and Comparative Law Review


Irina Marinescu


Socioeconomic unrest across Shari'ah (Islamic law) - abiding jurisdictions comes at a time of expanding Islamic financial markets. This Note focuses on one prominent financial instrument fueling growth in the Islamic finance landscape: sukuk. This Note explores legal uncertainties around sukuk default mechanisms and their implications for creditors and the world at large. In so doing, this Note argues that holders of sukuk, which are participatory certificates evidencing Shari'ah-compliant interests, stand to lose their capital depending on whether they have true recourse to the underlying assets. Part II frames the discussion by briefly introducing the reader to Islamic finance and sukuk. Part III makes the case that the Dirham (figuratively and literally) stops with the underlying assets in a sukuk default scenario, provided a host of other risk factors are overcome. Part IV illustrates by way of case study how direct recourse to assets in a sukuk structure matters. Part V explores wider implications of growing sukuk issuances amid the lack of legal clarity around default scenarios in Shari'ah jurisdictions. Above all, this Note represents a desire to learn more about and foster discussion in a potentially growing and fascinating field.