Enhancing Sukuk Default Remedies: A Shariah and Legal Perspective

Abstract

This research evaluates the efficacy of Shariah and legal remedies in resolving Sukuk defaults within the rapidly evolving Islamic finance landscape. Despite the theoretical emphasis on asset ownership and risk-sharing, contemporary default resolution mechanisms remain structurally inadequate. Employing a qualitative methodology comprising doctrinal analysis, comparative legal studies, and case examinations, this research identifies a critical disconnect: the dominance of asset-based Sukuk diminishes investor ownership rights and shifts the risk profile toward unsecured credit risk. Key impediments include legal ambiguities regarding beneficial ownership, an overreliance on purchase undertakings, and a lack of harmonized, Shariah-compliant insolvency regimes, particularly in cross-border contexts. These factors drive protracted litigation, inflate transaction costs, and erode investor confidence. To bridge these gaps, this study proposes a standardized framework that synchronizes legal enforceability with Shariah objectives (Maqasid al-Shariah). The findings advocate for reinforced regulatory coordination, the modernization of contractual structures, and the integration of financial technology to enhance transparency. Such reforms are vital for bolstering investor protection and ensuring the long-term stability of the global Sukuk market.