Are sukuk halal? What scholars agree on, where they split, and how to read a Shariah opinion

What everyone agrees on

Across the Hanafi, Maliki, Shafi'i and Hanbali schools and in Ja'fari jurisprudence, three rules shape every sukuk:

• No riba. A loan may not earn a return. So a sukuk cannot be a loan dressed as a certificate; it has to be ownership of something.
• No gharar. Contracts must be clear about what is sold, for how much, and when. Vague or contingent terms invalidate the sale.
• Permissible subject matter. The asset and its use must be lawful. A hotel that serves alcohol as a core business, a conventional bank's loan book, or a weapons factory cannot be the underlying.

AAOIFI's Shariah Standard 17 turns those rules into a definition: certificates of equal value representing undivided ownership in tangible assets, usufructs, services or the assets of specific projects. If a sukuk genuinely matches that definition, scholars across traditions accept it. The trouble starts when the match is cosmetic.

Dispute 1: the repurchase promise (2007 to 2008)

Most sukuk come with a purchase undertaking: the originator promises to buy the asset back at maturity, or if things go wrong. If that price is fixed at face value, the investor is guaranteed their capital. In a lease structure that is tolerable, because a lessor can agree today the price it will sell at tomorrow. In a partnership structure (mudaraba or musharaka), it is a problem: partners must share losses, so a partner who is guaranteed their capital is not really a partner. They are a lender.

In late 2007 Sheikh Muhammad Taqi Usmani, chairman of AAOIFI's Shariah board, said publicly that a large share of outstanding sukuk, reported in the press as about 85%, used such clauses and therefore fell short. Asharq Al-Awsat criticised the statement at the time for not specifying whether the figure applied to one structure or to the whole market, and the figure remains contested. AAOIFI's board then issued a resolution in February 2008 affirming that sukuk must represent real ownership and that fixed-price repurchase undertakings by the manager in equity-based sukuk are not permitted. International issuance fell sharply in 2008, partly for this reason and partly because of the global financial crisis.

Practical result: lease and agency structures with fixed buy-backs continued; partnership structures with guaranteed capital largely disappeared from new issuance. If you are looking at a mudaraba or musharaka sukuk, read the purchase undertaking first.

Dispute 2: asset-based versus asset-backed

A sukuk is asset-backed if the asset is truly sold to the holders, so that in a failure they own it and can sell it. It is asset-based if the holders have a beneficial interest but the originator keeps legal title and the holders' real protection is the originator's promise. Most sukuk are asset-based.

Some scholars argue that asset-based structures satisfy the letter of ownership but not its substance, since the holder's risk and reward track the originator's credit rather than the asset. Others accept them as a legitimate application of sale and promise. Both positions have serious scholars behind them. What is not acceptable is calling an asset-based sukuk "asset-backed" in marketing material, and regulators in the Gulf and Malaysia now police that language.

Dispute 3: trading debt

A murabaha sukuk represents a receivable: money owed after a sale on deferred payment. Selling a receivable for less than its face value is treated by most Gulf scholars as riba, so murabaha sukuk are held to maturity and not traded there. Malaysia's Shariah Advisory Council has historically taken a more permissive view of trading debt at a negotiated price, which is why Malaysian secondary markets include instruments that would not trade in Riyadh. Both positions are reasoned and documented; the point for an investor is that "tradable" depends on where you are and whose ruling you follow.

How the two major traditions organise the question

The two traditions reach their positions through different institutions and different chains of authority. Both treat sukuk as permissible in principle, both reject structures that amount to disguised loans, and both place the final word with qualified human scholars rather than with issuers or software.

What a Dana Gas moment teaches

In 2017 Dana Gas, a UAE company, stopped paying its USD 700 million mudaraba sukuk and argued that the structure had become unlawful under UAE law because Islamic finance practice had moved on since issue. Investors feared any issuer could use the same argument to walk away. The English High Court rejected the company's challenge to the purchase undertaking in November 2017, UAE courts ran a parallel track, and a consensual restructuring closed in 2018.

Two lessons for the "is it halal" question:

1. Shariah compliance is assessed at issue, under a named standard, by named scholars. A later change in scholarly opinion does not automatically unwind a contract, and courts will not treat it as if it did.
2. Documentation now says so explicitly. Post-2017 sukuk commonly include an issuer undertaking not to challenge the instrument's validity on Shariah grounds. That is a legal fix for a religious dispute, and it is worth knowing it is there.

How to read a sukuk's Shariah pronouncement

Every public sukuk comes with a Shariah opinion, usually a few pages inside the prospectus. Here is what to look for.

1. Who signed it. Named scholars, their institution, and whether they are the issuer's own board or an independent one. Anonymous "approved by our Shariah advisers" is a weak signal.
2. Which standard it applies. AAOIFI SS 17, a national council's resolutions, or the board's own methodology. This tells you whose rules you are relying on.
3. What the asset is and what share of the pool is tangible. Look for a stated minimum (commonly a majority) and a promise to maintain it.
4. How the purchase undertaking is priced. Face value in a lease: common and widely accepted. Face value in a partnership: the 2008 problem.
5. Whether monitoring is promised. Annual Shariah audit, reporting of breaches, and what happens if the asset's use becomes impermissible. Silence here is a gap.
6. Whether the opinion is published in full. A one-paragraph summary is not an opinion.

If a product ever tells you an algorithm "confirmed" a sukuk is halal, apply the same checklist to the algorithm: whose rules did it apply, who signed off, and who is accountable. Egypt's Dar al-Ifta has ruled that software may not be relied on to issue a fatwa; the same reasoning covers an automated halal stamp. Our page on AI agents in Islamic finance sets out what automation may and may not do.

Honest summary

• Sukuk are a legitimate, scholar-endorsed instrument class in both Sunni and Shia practice.
• Specific sukuk fail, and the usual reasons are known: guaranteed capital in partnerships, debt-heavy pools, impermissible use, and misleading labels.
• The quality of the Shariah opinion is the product you are buying as much as the yield.
• None of this makes a sukuk a good investment. That is a separate question, covered in how to invest in sukuk.