Jurisprudential Feasibility Study of Designing Inflation- Protected Musharakah and Ijarah Sukuk in Iran Capital Market

Authors

1 PhD student of Islamic Theology and Financial Management at Imam Sadiq University

2 researcher in the field of Islamic finance at Securities and Exchange Organization

Abstract

The problem of devaluation in case of inflation has caused the efficiency of fixed income bonds decreases. The high inflation rate in Iran during recent years and inflexibility of bonds payable have resulted in undesirable consequences. The effects of inflexibility of interest rate in bonds include the lack of attractiveness of securities for investment, increased costs for the issuance, the burden of financing projects on the banking system and ignorance of the real rights of investors. Inflation linked bonds are securities that link the return on securities with an inflation index such as consumer price index and this way not only keeps power purchase of investors in high inflation conditions, but also decreases financing costs for issuer in conditions with decreased inflation expectations. These bonds could be a very useful tool for countries with significant inflation rates. The main question in this study is “is it possible to design inflation linked Islamic securities according to Islamic jurisprudence?” this research surveys two types of Sukuks include inflation linked Ijarah and Musharakah Sukuk. Based on results of this research it’s possible to design inflation linked Ijarah and Musharakah Sukuk in the view of Islamic jurisprudence. This study for floating Ijarah Sukuk uses sequential Ijarah contract that provided under the first Ijarah contract and floating rate of return is determined based on specific formula for future periods. Also in Musharakah Sukuk we can float on account proceeds based on specific formula or by using embedded options in Sukuk structure.

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