Religious Normativity, Market Rationality, and the Legal Construction of Sukuk

Abstract

Islamic finance is commonly analysed either as a faith-based capital-market segment or as contractual techniques designed to circumvent the prohibition of interest. This contribution proposes a theoretical-legal reading instead, asking under what conditions the conversion of sharīʿa principles into capital-market instruments preserves their normative substance and under what conditions it reduces them to a formal shell. Two concepts organise the answer: legal translation – the never neutral operation by which principles of revealed origin are rendered in the technical language of contracts, securities, and regulation, and dual formalism, the twofold degeneration occurring when religious certification is reduced to a documentary check while the receiving secular system admits the instrument as a mere contractual form. The study is doctrinal and comparative, not empirical: it works on the religious-legal sources as mediated by fiqh scholarship, on AAOIFI and IFSB standards, on State legislation, case law, and scholarship, comparing Malaysia, the Gulf Cooperation Council countries, the United Kingdom, Luxembourg, and Italy along eight dimensions. Taking sukuk as the paradigmatic case, the analysis finds that the asset-backed/asset-based divide is the principal stress point of the translation, where substantive fidelity – the first of four jointly required criteria, alongside functional adequacy, recognisability, and verifiability – is most severely tested: purchase undertakings at nominal value reintroduce the credit-risk profile of the conventional bond, and insolvency is the point at which the divergence between proprietary form and obligational substance becomes visible. The article derives policy implications and indicates directions for further research.