RESOLUTION NO.(60/12/6)
CONCERNING "BONDS"

Compiled By:
Prof. Dr. Mohd. Ma’sum Billah
masum2001@yahoo.com
masum@applied-islamicfinance.com
+6019-3699542

Quote-The Council of the Islamic Fiqh Academy, in its sixth session, held
in Jeddah,  Kingdom of Saudi Arabia, from 17 to 23  Sha'baan,1410H
(corresponding to 14 - 20 March, 1990),

After having studied  the papers and recommendations presented and
conclusions reached at in the seminar held in Rabat(Morocco) on 20-24
Rabi'ul Thani 1410 H (October 20-24, 1989) on the subject of "Financial
markets", in cooperation between the Islamic Fiqh Academy and the Islamic
Research and Training Institute of the Islamic Development Bank, and hosted
by the Ministry of Endowments and Islamic Affairs of the Kingdom of Morocco.

And Keeping in view that a bond  is a certificate by which its issuer
undertakes the liability of paying its face value to the bearer on its
maturity along with an agreed interest relating to its value or to a
pre-determined profit, either in lump-sum or as a discount or in the form
of prizes to be distributed on the basis of ballot,

RESOLVES

FirstThe bonds which represent an undertaking to pay its amount along with
an interest related to its face value or to a pre-determined profit are
prohibited in Shari'a. Their issuance, their purchase and their negation,
are all prohibited because they are interest-bearing loans, no matter
whether their issuing authority belongs to the private sector or is a
public entity related to the State.  The change in the nomenclature, such
as calling the bonds "certificate" or "investment securities" or "saving
certificates" or calling the interest "profit" or "income" or "service
charge" or "commission" has no effect on the aforesaid ruling.
Second:The "zero coupon bonds" are also prohibited because they are loans
sold at a price inferior to the face value, and the owners of such bonds
benefit from the difference in their prices which is considered a discount
on the bonds.
Third:Similarly, the "prize bonds" are also prohibited because they are
loans in which a liability to pay a pre-determined profit or an additional
amount is undertaken in favor of their bearers as a whole, or in favor of
an undermined number of persons out of them.  Moreover, these bonds have a
resemblance with gambling ("Qimar").
Fourth:The interest bearing bonds can be substituted by the bonds and
certificates issued on the basis of the contract of "Mudharabah" (Profit
and loss sharing) meant for a particular project or a particular
enterprise, wherein no pre-determined profit or interest shall be paid to
the bearers, but they shall be entitled to get appropriate share in the
profit of the project in relation to the proportion of their respective
investments.  This profit cannot be given to them unless it has been
actually yielded.
A draft scheme of the "Mudharaba certificate" has already been approved by
the Council of the Academy in Resolution No. 30/5/4 of its Fourth
session.  This resolution can be availed of for further details.

Verily, Allah is Al-Knowing  Unquote

(Source: "Resolution and Recommendations of the Council of the Islamic Fiqh Academy (1985-2000)” , IRTI.)