PREFERENCE SHARES: ANALYSIS OF SHARĪʿAH ISSUES

Purpose – The purpose of this paper is to analyze the different features of preference shares from accounting and Sharīʿah perspectives. It also aims to study Sharīʿah issues arising from preference shares and to subsequently propose solutions for identified issues that will help in structuring Islamic preference shares.

Design/methodology/approach – The paper uses a qualitative method by analyzing relevant documents and literature to understand the subject matter and Sharīʿah-related issues.

Findings – The paper finds that several features of conventional preference shares, such as capital guarantee, loss sharing disproportionate to capital contribution, fixed profit, profit guarantee and waiver of rights before realization of profit, make them a Sharīʿah non-compliant instrument.

Research limitations/implications – The paper is conceptual in nature; however, it provides directions for future empirical research.

Originality/value – The paper provides a practicable solution to structure Sharīʿah-compliant preference shares.