Case Study 1: Trade Finance Receivable Securitization
XYZ Bank holds AED 500 million in Murabahah receivables (typical trade finance). It wants to raise liquidity. Shari'ah Structure: (1) The bank creates a Special Purpose Vehicle (SPV) and transfers the receivables to the SPV. (2) The SPV issues Sukuk backed by these receivables + real estate (owned by the bank) worth AED 300 million. (3) The total asset pool is AED 800M (receivables + real estate). (4) Applicable Standards: the Sale of Debt standard (sale of receivables to SPV must follow); the Murabahah standard (Murabahah receivables asset ratio); the Sale of Commodities standard (commodities in markets). (5) Key Control: Tangible assets (real estate) must exceed 50% of SPV value at issuance. Here: AED 300M / AED 800M = 37.5%. This FAILS the 50% test. (6) Shari'ah Solution: Bank must either (a) add more real estate to the SPV, or (b) reduce the receivable pool. The receivable-only Sukuk would be illiquid.
Case Study 2: Customer Default and Restructuring
ABC Manufacturing owes Bank DEF AED 2,000,000 (Murabahah, 24-month installments). After 12 months, ABC faces cash flow pressure and misses 3 installments. Applicable Standards: the Procrastinating Debtor standard (default), the Murabahah standard (Murabahah), the Sale of Debt standard (possible refinancing), the Debt Set-Off standard (set-off if ABC has deposits). (1) Bank DEF sends notice and allows 30-day grace period (— acceleration clause should include grace period). (2) After 30 days, bank triggers acceleration clause: all 12 remaining installments become due = AED 1,000,000 still outstanding. (3) ABC proposes: "We will request Hawalah from our parent company to settle the debt." Bank accepts. Parent company becomes payer; ABC is discharged. (4) Alternatively, ABC proposes refinancing: Bank finances purchase of equipment (AED 1,050,000) for which ABC uses proceeds to settle AED 1,000,000 owed. Bank agrees. New debt is AED 1,050,000 instead of AED 1,000,000, but for real equipment with full disposal rights. (5) Key Shari'ah Controls: (a) Acceleration clause was permissible with grace period; (b) Hawalah fully discharges ABC if parent accepted; (c) Refinancing is independent of old debt; (d) No financial penalties allowed, only charitable donation clause if applicable.
Case Study 3: Multi-Party Set-Off and Currency Risk
Bank GHI has complex exposures: (a) owes Customer J AED 100,000 (current account, demand); (b) Customer J owes Bank GHI USD 30,000 (Murabahah, due in 6 months); (c) Bank GHI owes Bank KLM USD 30,000 (interbank credit line, due in 3 months); (d) Bank KLM owes Bank GHI AED 100,000 (deposit, due on demand). Applicable Standards: the Debt Set-Off standard (set-off), the Trading in Currencies standard (currency exchange). (1) Bank GHI and Customer J have pre-agreed to contractual set-off. GHI owes AED 100,000 (on-demand, quality: lower-risk deposit); Customer J owes USD 30,000 (6-month maturity, quality: lower-risk Murabahah). These are NOT equal in maturity or quality, but contractual set-off permits waiving these requirements. (2) Exchange rate at settlement date applies (item 3 mentions this for currency swaps). The parties agree: settlement at 3.67 AED/USD = AED 110,100 owed by Customer J. After set-off of Customer J's AED 100,000, Customer J still owes AED 10,100. (3) Bank GHI and Bank KLM similarly pre-agree to contractual set-off. GHI owes USD 30,000; KLM owes AED 100,000. Exchange rate 3.67. After set-off, one party owes approximately AED 10,000. (4) Key Shari'ah Controls: (a) All parties consented (contractual set-off); (b) Exchange rate at settlement date protects against riba; (c) Currency mismatches are permissible with pre-agreement.
Case Study 4: Insolvency, Clawback, and Recourse
Retail Company XYZ is declared insolvent (debts AED 1,000M > assets AED 700M). One week before declaration, XYZ purchased merchandise from Supplier ABC for AED 50,000 (to be paid in 30 days). Supplier ABC provided goods. After insolvency declaration, XYZ is unable to pay. Applicable Standards: the Insolvency standard (insolvency), the Procrastinating Debtor standard (default). (1) Per item 6 (Claw-Back), a creditor selling goods to a debtor shortly before insolvency declaration may have the right to reclaim the goods IF: (a) the goods are still in the condition sold, and (b) insolvency was declared within a specified "period of uncertainty" (assessed by competent authority). This protects against pre-insolvency fraud. (2) If Supplier ABC can prove XYZ was insolvent at the time of sale (or became insolvent within the clawback window), Supplier ABC may reclaim the goods. The goods are removed from the sequestered assets. (3) If the goods cannot be reclaimed, Supplier ABC has an unsecured creditor claim and shares pro-rata with other creditors. (4) Key Shari'ah Controls: (a) Clawback protects against fraudulent pre-insolvency transfers; (b) Pro-rata distribution is the default; (c) Burden of proof is on the claimant.