Islamic financial institutions interact with their clients through various methods depending on the client’s circumstances. Some clients owe debts to the financial institution and have no means to repay them. These debts may arise from loans or financing arrangements, and each of these scenarios is dealt with differently by Islamic institutions based on their nature.
If the debts result from loans, Islamic financial institutions manage these client debts through various methods, each tailored to the specific situation and condition of the client. One of these methods is debt rollover (qalb al-dayn), which includes both permissible and impermissible forms. The permissibility or prohibition depends on the details of the composite transaction by which the debt rollover takes place.
However, if the debts originate from financing operations such as ṣukūk based on murābaḥah (cost-plus financing) or muḍārabah (profit-sharing), the financial institutions apply different approaches. For instance, if the transaction between the financial institution and the client involves financing through ijārah muntahiyah bi tamlīk (lease ending in ownership), and at the end of the contract term, a process referred to as ‘ṣukūk redemption’ (iṭfāʾ al-ṣukūk) takes place—the question arises: is the method of ṣukūk redemption permissible or not?
