Article

The Application of Legal and Beneficial Ownership in Sukuk Structure in Malaysia and Nigeria

Abstract

Sukuk is a financial instrument in the Islamic capital market and it has been expanding to all international financial markets in both Muslim and non-Muslim nations. Various government and corporate entities have demanded and supplied Sukuk in the international market making Sukuk as a new alternative for global investors. Notwithstanding this expansion, Sukuk is facing some challenges in terms of application of legal ownership and beneficial ownership in Sukuk structures. The objective of the study is to explore the application of legal ownership and beneficial ownership in Sukuk structures. The study employs both primary and secondary sources of data. The interview technique as the primary data source for this study was gathered from Malaysian and Nigerian Shariah scholars and interview data were thematically analysed using Nvivo 10. Malaysia and Nigeria were chosen as both countries are operating on the same legal system (common law). The secondary data sources for this study were conducted through relevant materials. Results indicated that the characterization of ownership into beneficial and legal arise in Sukuk structure in a country that applies the concept of common law. It is possible to separate legal ownership from beneficial ownership in these countries. The study demonstrated that the application of English law into Sukuk structures is based on the common law system that does not contradict the Shariah principles. However, the main issue is that the investors cannot gain benefits without taking liability. The findings further revealed that one of the factors that prevent investors from obtaining the legal title of Sukuk asset is the legal system and government policy of the country where Sukuk was issued. The result of this study will assist investors, issuers, and governments in dealing with the application of legal and beneficial ownership of Sukuk structures. Finally, the study recommended that during the tenure of Sukuk projects the investors should obtain underlying assets to prevent the issue of non-Shariah compliance.