Contemporary Applications Of Qalb Al-Dayn (Debt Conversion) And Structured And Hybrid Sukūk

A paper presented at the 25th Session of the International Islamic Fiqh Academy, 20-23 February, 2023

All praise is due to Allah, the Lord of all the worlds, and peace and blessings be upon the best of creation, our Prophet Muḥammad, his family, and all his companions, and upon those who follow his path until the Day of Judgement.

To proceed:

The topic of debt conversion, its contemporary applications, and the treatment of delinquent debts in financial institutions is of utmost importance in today’s financial world, including Islamic financial institutions. This is for a number of reasons, not the least of which are:

1. Understanding Debt Conversion and Its Practical Forms
Explaining qalb al-dayn and its practical manifestations has become a cornerstone of contemporary Islamic banking. Addressing this topic should be a priority, superseding other subjects.

2. The Global Financial Crisis
The global financial crisis that has affected the world today—most recently the COVID-19 pandemic, which started with limited impact but quickly spread, affecting all sectors and most countries—has highlighted the need for this scholarly institution (the International Islamic Fiqh Academy)—which has in its fold renowned fiqh scholars and experts—to set Sharīʿah parameters for the practices of the Islamic financial industry. This is relevant to our topic of deferred obligations and rights. It is more appropriate that it be the one to address the topic rather than those whose aspirations fall short of this goal, and undoubtedly, the Academy’s handling of it will contribute to distancing Islamic financial institutions from this encroaching peril. This is especially critical as some practices are increasingly approaching the edge of ribā, even at times the pre-Islamic ribā of Jāhiliyyah. Statistics show that debts have multiplied due to solutions that did not adhere to Sharīʿah guidelines.

3. Correcting the Path of Islamic Banking
Redirecting Islamic banking towards Sharīʿah rules, principles, and objectives is essential. Contemporary financial jurisprudence has intensified its efforts on devising financial products and their mechanisms, often involving legal stratagems, whether intentional or not. There has been less focus on other important aspects such as the objectives of Sharīʿah as they relate to products and the consequences [of using particular products]. It is hoped that a resolution from the International Islamic Fiqh Academy outlining the permissible and prohibited forms of debt conversion and the operational framework for them will contribute to correcting the path of Islamic banking, even if it takes time.

For these reasons and others, the Academy’s decision to make this a topic for research and study is commendable. And secondly, the precise methodological plan that accompanied the assignment also deserves acknowledgment.

The topic has been addressed on several occasions, and the Academy Council has discussed many aspects of debt conversion through debt sales in its various sessions, and there are numerous scientific and academic studies (master’s and doctoral theses), both theoretical and practical, that have explored the subject. That being the case, the focus of this research will be on specific issues that serve the research plan and elements outlined by the Academy in the guidelines that accompanied the request to write on this topic.

I reiterate my gratitude and appreciation to the Academy for its trust, to the Secretariat for the appropriate selection of topics, and for the precise scientific methodology established for this selection. I ask Allah, the Almighty, for success and guidance, and to forgive our intentional and unintentional mistakes.

Allah is the bestower of success.